UNITED STATES SECURITIES AND EXCHANGE COMMISSION ~~Washington, DC 20549~~

Washington, DC 20549

FORM 10-Q

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

~~For~~OF ~~the~~THE ~~Quarterly~~SECURITIES ~~period~~EXCHANGE ~~ended~~ACT ~~June~~OF ~~30, 2001~~1934

For the Quarterly period ended June 30, 2002

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

~~For~~OF ~~the~~THE ~~Transition~~SECURITIES ~~period~~EXCHANGE ~~from to .~~ACT OF 1934

Commission	Registrant; State of Incorporation;	IRS Employer
File Number	Address; and Telephone Number	Identification No.
1-8946	CILCORP Inc.	37-1169387
	(An Illinois Corporation)
	300 Liberty Street
	Peoria, Illinois 61602
	(309) 677-5230

For the Transition period from to

1-2732	CENTRAL ILLINOIS LIGHT COMPANY	37-0211050
Commission File Number		Registrant; State of Incorporation; Address; and Telephone Number	IRS Employer Identification No.
	(An Illinois Corporation)
1-8946		CILCORP Inc.	37-1169387
	300 Liberty Street
		(An Illinois Corporation)
	Peoria, Illinois 61602
		300 Liberty Street
	(309) 677-5230
		Peoria, Illinois 61602
		(309) 677-5230
1-2732		CENTRAL ILLINOIS LIGHT COMPANY	37-0211050
		(An Illinois Corporation)
		300 Liberty Street
		Peoria, Illinois 61602
		(309) 677-5230

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

~~Indicate the number of shares outstanding of each of the issuer's~~Yes ý ~~classes of common stock, as of the latest practicable date:~~ No o

CILCORP Inc.	Common stock, no par value shares outstanding and privately held by The AES Corporation at June 30, 2001	1,000
CENTRAL ILLINOIS LIGHT COMPANY	Common stock, no par value, shares outstanding and privately held by CILCORP Inc. at June 30, 2001	13,563,871

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY FORM 10-Q FOR THE QUARTER ENDED June 30, 2001 INDEX

CILCORP Inc.	Common stock, no par value, shares outstanding and privately held by The AES Corporation at June 30, 2002	1,000

CENTRAL ILLINOIS LIGHT COMPANY
	Common stock, no par value, shares outstanding and privately held by CILCORP Inc. at June 30, 2002	13,563,871

PART I.	FINANCIAL INFORMATION
Item 1:	Financial Statements
	CILCORP INC.
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statements of Cash Flows
	CENTRAL ILLINOIS LIGHT COMPANY
		Consolidated Balance Sheets
		Consolidated Statements of Income
		Consolidated Statements of Cash Flows
	Statements of Segments of Business
	Notes to Consolidated Financial Statements
	CILCORP Inc. and Central Illinois Light Company
Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations CILCORP Inc. and Central Illinois Light Company
PART II.	OTHER INFORMATION
Item 1:	Legal Proceedings
Item 5:	Other Information
Item 6:	Exhibits and Reports on Form 8-K
Signatures

CILCORP INC.

AND

CENTRAL ILLINOIS LIGHT COMPANY

FORM 10-Q FOR THE QUARTER ENDED June 30, 2002

INDEX

PART I.	FINANCIAL INFORMATION

Item 1:	Financial Statements

	CILCORP INC.

			Consolidated Statements of Operations

			Consolidated Balance Sheets

			Consolidated Statements of Cash Flows

	CENTRAL ILLINOIS LIGHT COMPANY

		Consolidated Statements of Income

		Consolidated Balance Sheets

		Consolidated Statements of Cash Flows

	Statements of Segments of Business

	Notes to Consolidated Financial Statements CILCORP Inc. and Central Illinois Light Company

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations CILCORP Inc. and Central Illinois Light Company

PART II.	OTHER INFORMATION

Item 1:	Legal Proceedings

Item 5:	Other Information

Item 6:	Exhibits and Reports on Form 8-K

Signatures

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CILCORP INC. AND SUBSIDIARIES ~~Consolidated Balance Sheets (In thousands) (Unaudited)~~

		June 30,		December 31,
		2001		2000
ASSETS
Current assets:
Cash and temporary cash investments		$	11,046	$	11,743
Receivables, less reserves of $1,151 and $1,343		88,753		91,050
Accrued unbilled revenue		27,017		70,444
Fuel, at average cost		16,166		13,995
Materials and supplies, at average cost		18,567		16,295
Gas in underground storage, at average cost		20,439		28,413
FAC/PGA underrecoveries		870		20,838
Prepayments and other		9,029		5,563
	Total current assets	191,887		258,341
Investments and other property:
Investment in leveraged leases		136,261		140,936
Other investments		20,150		21,056
	Total investments and other property	156,411		161,992
Property, plant and equipment:
Utility plant, at original cost
	Electric	703,065		695,220
	Gas	221,063		218,710
		924,128		913,930
Less - accumulated provision for depreciation		97,273		66,128
		826,855		847,802
Construction work in progress		40,137		29,213
Other, net of depreciation		79		144
	Total property, plant and equipment	867,071		877,159
Other assets:
Goodwill, net of accumulated amortization of $26,087 and $18,422		586,877		594,544
Other		68,495		56,240
Total other assets		655,372		650,784
	Total assets	$	1,870,741	$	1,948,276

Consolidated Statements of Operations

(In thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001

Revenue:
CILCO Electric	$	94,656		$	92,299		$	178,769		$	181,299
CILCO Gas	38,181			41,746			118,199			200,695
CILCO Other	28,473			26,330			50,233			39,284
Other businesses	11,736			9,525			30,027			25,485
Total	173,046			169,900			377,228			446,763
Operating expenses:
Fuel for generation and purchased power	57,774			54,881			111,234			101,797
Gas purchased for resale	32,259			33,411			98,150			174,099
Other operations and maintenance	36,536			34,400			69,710			64,782
Depreciation and amortization	18,036			21,820			36,047			42,910
Taxes, other than income taxes	9,241			8,811			21,001			21,705
Total	153,846			153,323			336,142			405,293
Fixed charges and other:
Interest expense	16,588			17,845			32,854			35,666
Preferred stock dividends of subsidiary	539			539			1,079			1,079
Allowance for funds used during construction	(409		)	(26		)	(647		)	(44		)
Other	325			316			667			618
Total	17,043			18,674			33,953			37,319
Income (loss) from continuing operations before income taxes	2,157			(2,097		)	7,133			4,151
Income taxes	37			213			998			3,236
Net income (loss) from continuing operations	2,120			(2,310		)	6,135			915
Loss from operations of discontinued businesses, net of tax of (3) and (8)	(3		)	—			(12		)	—
Net income (loss)	$	2,117		$	(2,310	)	$	6,123		$	915
Other comprehensive income (loss)	(440		)	(6,620		)	5,024			(6,869		)
Comprehensive income (loss)	$	1,677		$	(8,930	)	$	11,147		$	(5,954	)

See Notes to Consolidated Financial Statements.

~~CILCORP INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands) (Unaudited)~~3

		June 30,			December 31,
		2001			2000
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt		$	18,900		$	17,500
Notes payable		111,434			115,300
Accounts payable		66,001			113,571
Accrued taxes		19,476			20,170
Accrued interest		17,386			18,495
FAC/PGA overrecoveries		1,841			7
Other		17,064			6,287
	Total current liabilities	252,102			291,330
Long-term debt		719,106			720,482
Deferred credits and other liabilities:
Deferred income taxes		188,386			198,577
Regulatory liability of regulated subsidiary		43,147			42,752
Deferred investment tax credits		15,356			16,159
Freeman contract liability		83,524			90,574
Other		79,231			77,559
	Total deferred credits and other liabilities	409,644			425,621
Preferred stock of subsidiary without mandatory redemption		19,120			19,120
Preferred stock of subsidiary with mandatory redemption		22,000			22,000
	Total preferred stock of subsidiary	41,120			41,120
Stockholder's equity:
Common stock, no par value; authorized 10,000 shares – outstanding 1,000 shares		–			–
Additional paid-in capital		468,833			468,833
Retained earnings (deficit)		(12,745		)	1,340
Accumulated other comprehensive income (loss)		(7,319		)	(450		)
	Total stockholder's equity	448,769			469,723
	Total liabilities and stockholder's equity	$	1,870,741		$	1,948,276

CILCORP INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

(Unaudited)

	June 30, 2002		December 31, 2001
ASSETS

Current assets:
Cash and Temporary Cash Investments	$	79,158	$	18,312
Receivables, Less Allowance for Uncollectible Accounts of $2,609 and $1,800	53,094		47,610
Accrued Unbilled Revenue	25,314		40,265
Fuel, at Average Cost	18,169		18,068
Materials and Supplies, at Average Cost	17,528		17,273
Gas in Underground Storage, at Average Cost	13,751		27,067
FAC Underrecoveries	1,255		1,255
PGA Underrecoveries	5,288		3,236
Prepayments and Other	11,150		7,627
Total Current Assets	224,707		180,713
Investments and Other Property:
Investment in Leveraged Leases	134,718		135,504
Other Investments	18,220		19,285
Total Investments and Other Property	152,938		154,789
Property, Plant and Equipment:
Utility Plant, at Original Cost
Electric	724,593		716,857
Gas	238,520		233,278
	963,113		950,135
Less-Accumulated Provision for Depreciation	154,886		126,502
	808,227		823,633
Construction Work in Progress	77,244		34,340
Other, Net of Depreciation	22		14
Total Property, Plant and Equipment	885,493		857,987
Other Assets:
Goodwill, Net of Accumulated Amortization of $33,753	579,211		579,211
Other	36,899		38,998
Total Other Assets	616,110		618,209

Total Assets	$	1,879,248	$	1,811,698

See Notes to Consolidated Financial Statements.

~~CILCORP INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands) (Unaudited)~~4

		Three Months Ended						Six Months Ended
		June 30, 2002			December 31, 2001
		June 30,						June 30,
LIABILITIES AND STOCKHOLDER’S EQUITY
		2001			2000			2001			2000
Current liabilities:
Revenue:
Current Portion of Long-Term Debt		$	26,750		$	1,400
CILCO Electric		$	92,299		$	94,920		$	181,299		$	181,246
Notes Payable		36,000			63,000
CILCO Gas		41,746			32,810			200,695			102,954
Accounts Payable		64,155			75,644
CILCO Other		26,330			10,469			39,284			18,853
Accrued Taxes		13,385			14,879
Other businesses		9,525			5,434			25,485			11,703
Accrued Interest		17,444			18,392
	Total	169,900			143,633			446,763			314,756
Other		9,389			18,281
Operating expenses:
Total Current Liabilities		167,123			191,596
Fuel for generation and purchased power		55,207			49,419			102,450			88,672
Long-Term Debt		792,404			717,730
Gas purchased for resale		33,411			20,499			174,099			63,562
Deferred Credits and Other Liabilities:
Other operations and maintenance		34,074			29,305			64,129			56,605
Deferred Income Taxes		212,955			202,822
Depreciation and amortization		21,820			21,281			42,910			42,302
Regulatory Liability of Regulated Subsidiary		35,835			45,377
Taxes, other than income taxes		8,811			8,598			21,705			20,578
Deferred Investment Tax Credit		13,756			14,553
	Total	153,323			129,102			405,293			271,719
Other		89,796			83,388
Fixed charges and other:
Total Deferred Credits and Other Liabilities		352,342			346,140
Interest expense		17,757			17,243			35,666			34,586
Preferred Stock of Subsidiary without Mandatory Redemption		19,120			19,120
Preferred stock dividends of subsidiary		539			1,058			1,079			1,898
Preferred Stock of Subsidiary with Mandatory Redemption		22,000			22,000
Allowance for funds used during construction		(26		)	(99		)	(44		)	(202		)
Total Preferred Stock of Subsidiary		41,120			41,120
Other		404			246			618			521
Stockholder’s Equity:
	Total	18,674			18,448			37,319			36,803
Common Stock, no par value; Authorized 10,000
Income (loss) before income taxes		(2,097		)	(3,917		)	4,151			6,234
Outstanding 1,000		—			—
Income taxes		213			(988		)	3,236			3,454
Additional Paid-in Capital		518,833			518,833
	Net income (loss)	(2,310		)	(2,929		)	915			2,780
Retained Earnings		16,428			10,305
Other comprehensive income (loss)		(6,620		)	—			(6,869		)	—
Accumulated Other Comprehensive Income (Loss)		(9,002		)	(14,026		)
	Comprehensive income (loss)	$	(8,930	)	$	(2,929	)	$	(5,954	)	$	2,780
Total Stockholder’s Equity		526,259			515,112
Total Liabilities and Stockholder’s Equity		$	1,879,248		$	1,811,698

See Notes to Consolidated Financial Statements.

~~CILCORP INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)~~5

		Six Months Ended
		June 30,
		2001			2000
Cash flows from operating activities:
Net income before preferred dividends of subsidiary		$	1,994		$	4,678
Adjustments to reconcile net income to net cash provided by operating activities:
	Non-cash lease income and investment income	(2,262		)	(4,598		)
	Cash receipts in excess of debt service on leases	6,225			8,315
	Depreciation and amortization	42,910			42,302
	Deferred income taxes, investment tax credit and regulatory liability of subsidiary, net	(13,349		)	(7,873		)
Changes in operating assets and liabilities:
	Decrease in accounts receivable and accrued unbilled revenue	42,662			6,606
	Decrease in inventories	3,531			6,493
	Increase (decrease) in accounts payable	(44,519		)	11,356
	Decrease in accrued taxes	(761		)	(10,913		)
	(Increase) decrease in other assets	2,428			(11,732		)
	Increase (decrease) in other liabilities	11,517			(4,314		)
	Total adjustments	48,382			35,642
	Net cash provided by operating activities from continuing operations	50,376			40,320
	Net cash provided (used) by operating activities of discontinued operations	81			(134		)
	Cash flow from operations	50,457			40,186
Cash flows from investing activities:
Additions to plant		(24,532		)	(23,831		)
Other		(6,677		)	(1,025		)
	Net cash used in investing activities	(31,209		)	(24,856		)
Cash flow from financing activities:
Net increase (decrease) in short-term debt		(3,866		)	7,800
Net decrease in long-term debt		—			(22,000		)
Common dividends paid		(15,000		)	(6,200		)
Subsidiary preferred dividends paid		(1,079		)	(1,898		)
	Net cash used in financing activities	(19,945		)	(22,298		)
Net decrease in cash and temporary cash investments		(697		)	(6,968		)
Cash and temporary cash investments at beginning of year:		11,743			11,220
Cash and temporary cash investments at June 30		$	11,046		$	4,252
Supplemental disclosures of cash flow information:
Cash paid during the period for:
	Interest	$	37,043		$	37,149
	Income taxes	$	9,411		$	15,950

CILCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2002			2001
Cash flows from operating activities:
Net income from continuing operations before preferred dividends of subsidiary	$	7,214		$	1,994
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash lease income and investment income	(2,060		)	(2,262		)
Cash receipts in excess of debt service on leases	3,402			6,225
Depreciation and amortization	36,047			42,910
Deferred income taxes, investment tax credit and regulatory liability of subsidiary, net	6,022			(13,349		)
Changes in operating assets and liabilities:
Decrease in accounts receivable and accrued unbilled revenue	8,722			42,662
Decrease in inventories	12,960			3,531
Decrease in accounts payable	(10,749		)	(44,519		)
Decrease in accrued taxes	(1,494		)	(761		)
(Increase) decrease in other assets	(2,171		)	2,428
(Decrease) increase in other liabilities	(5,124		)	4,648
Total adjustments	45,555			41,513
Net cash provided by operating activities from continuing operations	52,769			43,507
Net cash (used in) provided by operating activities of discontinued operations	(7		)	81
Cash flow from operations	52,762			43,588
Cash flows from investing activities:
Additions to plant	(63,051		)	(24,532		)
Other	(786		)	192
Net cash used in investing activities	(63,837		)	(24,340		)
Cash flow from financing activities:
Net decrease in short-term debt	(27,000		)	(3,866		)
Issuance of long-term debt	100,000			—
Common dividends paid	—			(15,000		)
Subsidiary preferred dividends paid	(1,079		)	(1,079		)
Net cash provided by (used in) financing activities	71,921			(19,945		)
Net increase (decrease) in cash and temporary cash investments:	60,846			(697		)
Cash and temporary cash investments at beginning of year:	18,312			11,743
Cash and temporary cash investments at June 30	$	79,158		$	11,046

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest	$	35,135		$	37,043

Income taxes	$	88		$	9,411

See Notes to Consolidated Financial Statements.

~~CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands) (Unaudited)~~6

			June 30,		December 31,
			2001		2000
ASSETS
Utility plant, at original cost:
	Electric		$	1,312,960	$	1,305,115
	Gas		444,429		442,076
			1,757,389		1,747,191
	Less—accumulated provision for depreciation		956,526		926,091
			800,863		821,100
Construction work in progress			40,137		29,213
		Total utility plant	841,000		850,313
Other property and investments:
Cash surrender value of company-owned life insurance (net of related policy loans of $63,483 and $59,292)			3,098		3,497
Other			1,130		1,161
		Total other property and investments	4,228		4,658
Current assets:
Cash and temporary cash investments			5,616		8,777
Receivables, less reserves of $1,151 and $1,343			76,835		60,148
Accrued unbilled revenue			24,857		64,339
Fuel, at average cost			16,166		13,995
Materials and supplies, at average cost			15,822		15,807
Gas in underground storage, at average cost			20,439		28,413
Prepaid taxes			6,171		5,588
FAC/PGA underrecoveries			870		20,838
Other			8,987		5,556
		Total current assets	175,763		223,461
Deferred debits:
Unamortized loss on reacquired debt			2,570		2,691
Unamortized debt expense			1,366		1,427
Prepaid pension cost			229		229
Other			39,844		24,661
		Total deferred debits	44,009		29,008
Total assets			$	1,065,000	$	1,107,440

CENTRAL ILLINOIS LIGHT COMPANY

Consolidated Statements of Income

(In thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
Operating revenue:
Electric	$	94,656		$	92,299		$	178,769		$	181,299
Gas	38,181			41,746			118,199			200,695
Total operating revenues	132,837			134,045			296,968			381,994
Operating expenses:
Cost of fuel	24,295			24,704			46,325			53,964
Cost of gas	22,364			25,816			71,972			152,496
Purchased power	12,517			9,547			24,047			19,659
Other operations and maintenance	35,417			33,439			66,863			62,474
Depreciation and amortization	17,681			17,244			35,345			34,469
Income taxes	2,143			3,288			7,655			9,944
Other taxes	9,168			8,791			20,908			21,659
Total operating expenses	123,585			122,829			273,115			354,665
Operating income	9,252			11,216			23,853			27,329
Other income and deductions:
Company-owned life insurance, net	(325		)	(316		)	(667		)	(618		)
Other, net	4,584			2,833			5,388			5,285
Total other income and (deductions)	4,259			2,517			4,721			4,667
Interest expenses:
Interest on long-term debt	4,387			4,329			8,754			8,657
Cost of borrowed funds capitalized	(409		)	(26		)	(647		)	(44		)
Other	979			1,856			2,029			3,478
Total interest expense	4,957			6,159			10,136			12,091
Net income before preferred dividends	8,554			7,574			18,438			19,905
Dividends on preferred stock	539			539			1,079			1,079
Income available for common stock	8,015			7,035			17,359			18,826
Other comprehensive income (loss)	(440		)	(6,620		)	5,024			(6,869		)
Comprehensive income	$	7,575		$	415		$	22,383		$	11,957

See Notes to Consolidated Financial Statements.

~~CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands) (Unaudited)~~7

			June 30,			December 31,
			2001			2000
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stockholder's equity:
	Common stock, no par value; authorized 20,000,000 shares; outstanding 13,563,871 shares		$	185,661		$	185,661
Additional paid-in capital			27,000			27,000
Retained earnings			129,190			140,364
Accumulated other comprehensive income (loss)			(7,844		)	(975		)
		Total common stockholder's equity	334,007			352,050
Preferred stock without mandatory redemption			19,120			19,120
Preferred stock with mandatory redemption			22,000			22,000
Long-term debt			244,107			245,482
		Total capitalization	619,234			638,652
Current liabilities:
Current maturities of long-term debt			1,400			—
Notes payable			80,434			67,300
Accounts payable			55,686			96,315
Accrued taxes			24,351			25,512
Accrued interest			7,985			8,889
FAC/PGA overrecoveries			1,841			7
Other			16,992			6,214
		Total current liabilities	188,689			204,237
Deferred credits and other liabilities
Deferred income taxes			114,004			123,611
Regulatory liability			43,146			42,752
Deferred investment tax credit			15,356			16,159
Capital lease obligation			315			616
Other			84,256			81,413
		Total deferred credits and other liabilities	257,077			264,551
Total capitalization and liabilities			$	1,065,000		$	1,107,440

CENTRAL ILLINOIS LIGHT COMPANY

Consolidated Balance Sheets

(In thousands)

(Unaudited)

	June 30, 2002		December 31, 2001
ASSETS
Utility Plant, At Original Cost:
Electric	$	1,333,967	$	1,326,231
Gas	462,407		457,165
	1,796,374		1,783,396
Less-Accumulated Provision for Depreciation	1,012,719		985,045
	783,655		798,351
Construction Work in Progress	77,244		34,340
Total Utility Plant	860,899		832,691
Other Property and Investments:
Cash Surrender Value of Company-owned Life Insurance (Net of Related Policy Loans of $69,592 and $65,314)	3,541		3,920
Other	1,115		1,133
Total Other Property and Investments	4,656		5,053
Current Assets:
Cash and Temporary Cash Investments	71,108		12,584
Receivables, Less Allowance for Uncollectible Accounts of $2,609 and $1,800	51,145		49,375
Accrued Unbilled Revenue	23,400		34,067
Fuel, at Average Cost	18,169		18,068
Materials and Supplies, at Average Cost	16,475		15,849
Gas in Underground Storage, at Average Cost	13,751		27,067
Prepaid Taxes	9,504		9,007
FAC Underrecoveries	1,255		1,255
PGA Underrecoveries	5,288		3,236
Other	11,120		7,569
Total Current Assets	221,215		178,077
Deferred Debits:
Unamortized Loss on Reacquired Debt	2,327		2,448
Unamortized Debt Expense	1,746		1,305
Prepaid Pension Cost	168		168
Other	19,699		21,971
Total Deferred Debits	23,940		25,892
Total Assets	$	1,110,710	$	1,041,713

See Notes to Consolidated Financial Statements.

~~CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Income (In thousands) (Unaudited)~~8

		Three Months Ended						Six Months Ended
		June 30, 2002			December 31, 2001
		June 30,						June 30,
CAPITALIZATION AND LIABILITIES
		2001			2000			2001			2000
Capitalization:
Operating revenue:
Common Stockholder’s Equity:
Electric		$	92,299		$	94,920		$	181,299		$	181,246
Common Stock, No Par Value; Authorized 20,000,000 Shares; Outstanding 13,563,871 Shares		$	185,661		$	185,661
Gas		41,746			32,810			200,695			102,954
Additional Paid-in Capital		52,000			52,000
Total operating revenues		134,045			127,730			381,994			284,200
Retained Earnings		97,404			108,045
Operating expenses:
Accumulated Other Comprehensive Income (Loss)		(781		)	(5,805		)
Cost of fuel		24,704			23,148			53,964			52,147
Total Common Stockholder’s Equity		334,284			339,901
Cost of gas		25,816			17,474			152,496			58,406
Preferred Stock Without Mandatory Redemption		19,120			19,120
Purchased power		9,547			15,000			19,659			17,899
Preferred Stock With Mandatory Redemption		22,000			22,000
Other operations and maintenance		33,439			27,393			62,474			53,256
Long-term Debt		317,405			242,730
Depreciation and amortization		17,244			17,668			34,469			35,077
Total Capitalization		692,809			623,751
Income taxes		3,288			4,658			9,944			13,240
Current Liabilities:
Other taxes		8,791			8,589			21,659			20,456
Current Maturities of Long-Term Debt		26,750			1,400
	Total operating expenses	122,829			113,930			354,665			250,481
Notes Payable		36,000			43,000
Operating income		11,216			13,800			27,329			33,719
Accounts Payable		57,847			81,140
Other income and deductions:
Accrued Taxes		35,501			28,862
Company-owned life insurance, net		(316		)	(246		)	(618		)	(521		)
Accrued Interest		8,169			9,143
Other, net		2,833			(541		)	5,285			67
Other		9,389			18,281
	Total other income and (deductions)	2,517			(787		)	4,667			(454		)
Total Current Liabilities		173,656			181,826
Income before interest expense		13,733			13,013			31,996			33,265
Deferred Liabilities and Credits:
Interest expenses:
Accumulated Deferred Income Taxes		103,352			92,428
Interest on long-term debt		4,329			4,329			8,657			8,860
Regulatory Liability		35,835			45,377
Cost of borrowed funds capitalized		(26		)	(99		)	(44		)	(202		)
Investment Tax Credits		13,756			14,553
Other		191,~~856~~302			183,~~018~~778			~~3,478~~			~~1,999~~
Total interest expense		6,159			5,248			12,091			10,657
Total Deferred Liabilities and Credits		244,245			236,136
Net income		7,574			7,765			19,905			22,608
Total Capitalization and Liabilities		$	1,110,710		$	1,041,713
Dividends on preferred stock		539			1,058			1,079			1,898
Income available for common stock		7,035			6,707			18,826			20,710
Other comprehensive income (loss)		(6,620		)	—			(6,869		)	—
Comprehensive income		$	415		$	6,707		$	11,957		$	20,710

See Notes to Consolidated Financial Statements.

~~CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Cash Flows (In thousands) (Unaudited)~~9

		Six Months Ended
		June 30,
		2001			2000
Cash flows from operating activities:
Net income before preferred dividends		$	19,905		$	22,608
Adjustments to reconcile net income to cash provided by operating activities:
	Depreciation and amortization	34,469			35,077
	Deferred income taxes, investment tax credit and regulatory liability, net	(10,015		)	(6,013		)
Changes in operating assets and liabilities:
	Increase in accounts receivable	(16,687		)	(3,173		)
	Decrease in fuel, materials and supplies, and gas in underground storage	5,787			6,672
	Decrease in unbilled revenue	39,483			10,001
	Increase (decrease) in accounts payable	(40,629		)	4,999
Decrease in accrued taxes and interest		(2,064		)	(13,755		)
Capital lease payments		323			323
Decrease in other current assets		15,954			2,130
Increase in other current liabilities		12,612			157
Increase in other non-current assets		(14,174		)	(6,083		)
Increase (decrease) in other non-current liabilities		2,725			(1,746		)
	Net cash provided by operating activities	47,689			51,197
Cash flows from investing activities:
Capital expenditures		(24,532		)	(23,831		)
Other		(8,050		)	(2,664		)
	Net cash used in investing activities	(32,582		)	(26,495		)
Cash flow from financing activities:
Common dividends paid		(30,000		)	(16,000		)
Preferred dividends paid		(1,079		)	(1,897		)
Payments on capital lease obligation		(323		)	(323		)
Increase in short-term borrowing		13,134			9,800
Long-term debt retired		—			(30,000		)
Long-term debt issued		—			8,000
	Net cash used in financing activities	(18,268		)	(30,420		)
Net decrease in cash and temporary cash investments		(3,161		)	(5,718		)
Cash and temporary cash investments at beginning of year		8,777			8,548
Cash and temporary cash investments at June 30		$	5,616		$	2,830
Supplemental disclosures of cash flow information:
Cash paid during the period for:
	Interest (net of cost of borrowed funds capitalized)	$	13,249		$	13,881
	Income taxes	$	17,508		$	30,391

CENTRAL ILLINOIS LIGHT COMPANY

SeeConsolidated NotesStatements toof Consolidated FinancialCash Statements.Flows

~~Statements~~(In ~~of Segments of Business CILCORP Inc. and Subsidiaries Three Months Ended June 30, 2001~~thousands)

		CILCO Electric			CILCO Gas			CILCO Other		Other Businesses			Total
		(In thousands)
Revenues		$	92,299		$	41,746		$	26,210	$	9,460		$	169,715
Interest income		—			—			120		65			185
	Total	92,299			41,746			26,330		9,525			169,900
Operating expenses		65,837			36,460			22,511		6,695			131,503
Depreciation and amortization		11,768			5,476			—		4,576			21,820
	Total	77,605			41,936			22,511		11,271			153,323
Interest expense		4,441			1,744			—		11,660			17,845
Preferred stock dividends		—			—			539		—			539
Fixed charges and other expenses		(26		)	—			316		—			290
	Total	4,415			1,744			855		11,660			18,674
Income before income taxes		10,279			(1,934		)	2,964		(13,406		)	(2,097		)
Income taxes		4,058			(770		)	986		(4,061		)	213
Segment net income		$	6,221		$	(1,164	)	$	1,978	$	(9,345	)	$	(2,310	)

(Unaudited)

See Notes to Consolidated Financial Statements.

	Six Months Ended June 30,
	2002			2001
Cash flows from operating activities:
Net income before preferred dividends	$	18,438		$	19,905

Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	35,345			34,469
Deferred income taxes, investment tax credit and regulatory liability, net	6,813			(10,015		)
Changes in operating assets and liabilities:
Increase in accounts receivable	(1,771		)	(16,687		)
Decrease in fuel, materials and supplies, and gas in underground storage	12,590			5,787
Decrease in accrued unbilled revenue	10,667			39,483
Decrease in accounts payable	(23,293		)	(40,629		)
Increase (decrease) in accrued taxes and interest	5,666			(2,064		)
Capital lease payments	323			323
(Increase) decrease in other current assets	(6,101		)	15,954
(Decrease) increase in other current liabilities	(3,868		)	5,743
Decrease (increase) in other non-current assets	3,256			(14,174		)
Increase in other non-current liabilities	1,363			2,725
Net cash provided by operating activities	59,428			40,820
Cash flows from investing activities:
Capital expenditures	(63,051		)	(24,532		)
Other	(1,451		)	(1,181		)
Net cash used in investing activities	(64,502		)	(25,713		)
Cash flow from financing activities:
Common dividends paid	(28,000		)	(30,000		)
Preferred dividends paid	(1,079		)	(1,079		)
Payments on capital lease obligation	(323		)	(323		)
(Decrease) increase in short-term borrowing	(7,000		)	13,134
Long-term debt issued	100,000			—
Net cash provided by (used in) financing activities	63,598			(18,268		)
Net increase (decrease) in cash and temporary cash investments	58,524			(3,161		)

Cash and temporary cash investments at beginning of year	12,584			8,777
Cash and temporary cash investments at June 30	$	71,108		$	5,616

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest (net of cost of borrowed funds capitalized)	$	14,360		$	13,249

Income taxes	$	1,167		$	17,508

~~Statements of~~See ~~Segments~~Notes ofto ~~Business~~Consolidated ~~CILCORP Inc. and Subsidiaries~~ ~~Three~~Financial ~~Months Ended June 30, 2000~~Statements.

		CILCO Electric			CILCO Gas			CILCO Other			Other Businesses			Total
		(In thousands)
Revenues		$	94,920		$	32,810		$	10,443		$	5,395		$	143,568
Interest income		—			—			26			39			65
	Total	94,920			32,810			10,469			5,434			143,633
Operating expenses		64,832			26,772			12,021			4,196			107,821
Depreciation and amortization		12,372			5,296			—			3,613			21,281
	Total	77,204			32,068			12,021			7,809			129,102
Interest expense		3,818			1,529			—			11,896			17,243
Preferred stock dividends		—			—			1,058			—			1,058
Fixed charges and other expenses		(99		)	—			246			—			147
	Total	3,719			1,529			1,304			11,896			18,448
Income before income taxes		13,997			(787		)	(2,856		)	(14,271		)	(3,917		)
Income taxes		4,961			(303		)	(1,011		)	(4,635		)	(988		)
Segment net income		$	9,036		$	(484	)	$	(1,845	)	$	(9,636	)	$	(2,929	)

Statements of Segments of ~~Business~~ ~~CILCORP Inc. and Subsidiaries~~ ~~Six Months Ended June 30, 2001~~Business

		CILCO Electric			CILCO Gas		CILCO Other			Other Businesses				Total
		(In thousands)
Revenues		$	181,299		$	200,695	$	39,004	$		25,330		$		446,328
Interest income		—			—		280		155				435
	Total	181,299			200,695		39,284		25,485				446,763
Operating expenses		134,336			175,916		32,289		19,842				362,383
Depreciation and amortization		23,524			10,945		—		8,441				42,910
	Total	157,860			186,861		32,289		28,283				405,293
Interest expense		8,664			3,471		—		23,531				35,666
Preferred stock dividends		—			—		1,079		—				1,079
Fixed charges and other expenses		(44		)	—		618		—				574
	Total	8,620			3,471		1,697		23,531				37,319
Income before income taxes		14,819			10,363		5,298		(26,329			)	4,151
Income taxes		5,819			4,125		1,710		(8,418			)	3,236
Segment net income		$	9,000		$	6,238	$	3,588	$		(17,911	)	$		915

CILCORP Inc. and Subsidiaries

~~See~~Three ~~Notes~~Months ~~to Consolidated~~Ended ~~Financial~~ June ~~Statements.~~30, 2002

Statements of Segments of Business CILCORP Inc. and Subsidiaries Six Months Ended June 30, 2000

	CILCO Electric			CILCO Gas			CILCO Other		Other Businesses			Discont. Oper.			Total
	(In thousands)

Revenues	$	94,656		$	38,181		$	28,437	$	11,720		$	—		$	172,994
Interest income	—			—			36		16			—			52
Total	94,656			38,181			28,473		11,736						173,046
Operating expenses	69,863			33,898			21,777		10,272			—			135,810
Depreciation and amortization	12,074			5,607			—		355			—			18,036
Total	81,937			39,505			21,777		10,627						153,846
Interest expense	3,907			1,459			—		11,222			—			16,588
Preferred stock dividends	—			—			539		—			—			539
Fixed charges and
other expenses	(409		)	—			325		—			—			(84		)
Total	3,498			1,459			864		11,222			—			17,043
Income (loss) from continuing oper. before income taxes	9,221			(2,783		)	5,832		(10,113		)	—			2,157
Income taxes	3,204			(1,061		)	2,112		(4,218		)	—			37
Net income (loss) from continuing oper.	6,017			(1,722		)	3,720		(5,895		)	—			2,120

Effect of discontinued oper.	—			—			—		—			(3		)	(3		)
Segment net income (loss)	$	6,017		$	(1,722	)	$	3,720	$	(5,895	)	$	(3	)	$	2,117

		CILCO Electric			CILCO Gas		CILCO Other			Other Businesses			Total
		(In thousands)
Revenues		$	181,246		$	102,954	$	18,784		$	11,610		$	314,594
Interest income		—			—		69			93			162
	Total	181,246			102,954		18,853			11,703			314,756
Operating expenses		122,631			79,533		20,151			7,102			229,417
Depreciation and amortization		24,573			10,504		—			7,225			42,302
	Total	147,204			90,037		20,151			14,327			271,719
Interest expense		7,753			3,106		—			23,727			34,586
Preferred stock dividends		—			—		1,898			—			1,898
Fixed charges and other expenses		(202		)	—		521			—			319
	Total	7,551			3,106		2,419			23,727			36,803
Income before income taxes		26,491			9,811		(3,717		)	(26,351		)	6,234
Income taxes		9,321			3,919		(1,365		)	(8,421		)	3,454
Segment net income		$	17,170		$	5,892	$	(2,352	)	$	(17,930	)	$	2,780

See Notes to Consolidated Financial Statements.

~~CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~11

~~NOTE~~Statements ~~1. Introduction~~of Segments of Business

~~The consolidated financial statements include the accounts of~~ CILCORP ~~Inc.~~ ~~(CILCORP or the Holding Company), Central Illinois Light Company (CILCO), QST Enterprises~~ Inc. ~~(QST)~~ and ~~its subsidiaries, QST Energy Inc. (QST Energy),~~ ~~and CILCORP Infraservices Inc. (CILCORP Infraservices), and CILCORP's other~~ subsidiaries (collectively, the Company), after elimination of significant intercompany transactions. The consolidated financial statements of CILCO include the accounts of CILCO and its subsidiaries, CILCO Exploration and Development Company and CILCO Energy Corporation. CILCORP owns 100% of the common stock of its first-tier subsidiaries. In the fourth quarter of 1998, the operations of QST and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices Inc. - see Management's Discussion and Analysis) were discontinued and, therefore, are being reported as discontinued operations in the financial statements. Prior year amounts have been reclassified on a basis consistent with the 2001 presentation.Subsidiaries

~~AES~~Three ~~completed~~Months ~~the~~Ended ~~acquisition of 100% of CILCORP's outstanding stock on~~June ~~October 18, 1999. The merger was~~ ~~accounted for using the purchase method of accounting. Under this method~~30, the purchase price was allocated to the fair market value of the assets acquired and the liabilities assumed. The excess of the purchase price over the fair value of the net assets acquired of approximately $573 million was recorded as goodwill at CILCORP and is being amortized over 40 years. This initial allocation of the purchase price at October 18, 1999, was based on preliminary estimates made by the Company. During 2000, adjustments were made to the purchase price allocation as additional information became available to finalize the allocation previously based upon preliminary estimates. The primary effect of these adjustments was to increase goodwill by approximately $40 million, to increase utility plant by $28.4 million (offset by deferred taxes of $11.3 million), and to record a liability of approximately $110 million for an out-of-market long-term coal contract (offset by deferred taxes of approximately $44 million and net customer contract intangibles of approximately $17 million). Changes to the Company's estimates after October 2000, if any, will be recorded in results of operations.2001

The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC). Although CILCORP believes the disclosures are adequate to make the information presented not misleading, these consolidated financial statements should be read along with the Company's 2000 Annual Report on Form 10-K.

	CILCO Electric			CILCO Gas			CILCO Other		Other Businesses			Total
	(In thousands)

Revenues	$	92,299		$	41,746		$	26,210	$	9,460		$	169,715
Interest income	—			—			120		65			185
Total	92,299			41,746			26,330		9,525			169,900
Operating expenses	65,837			36,460			22,511		6,695			131,503
Depreciation and amortization	11,768			5,476			—		4,576			21,820
Total	77,605			41,936			22,511		11,271			153,323
Interest expense	4,441			1,744			—		11,660			17,845
Preferred stock dividends	—			—			539		—			539
Fixed charges and other expenses	(26		)	—			316		—			290
Total	4,415			1,744			855		11,660			18,674
Income (loss) before income taxes	10,279			(1,934		)	2,964		(13,406		)	(2,097		)
Income taxes	4,058			(770		)	986		(4,061		)	213
Segment net income (loss)	$	6,221		$	(1,164	)	$	1,978	$	(9,345	)	$	(2,310	)

InSee ~~the~~Notes ~~Company's opinion, the consolidated financial statements~~to ~~furnished reflect all normal and recurring adjustments necessary for a fair~~ ~~presentation~~Consolidated ofFinancial ~~the results of operations for the periods presented~~Statements. ~~Operating results for interim periods are not necessarily indicative of operating results to be expected for the year or of the Company's future financial condition.~~

~~NOTE 2. Contingencies~~12

InStatements ~~February 1999, QST Energy notified two~~ of ~~its California commercial~~ ~~customers that they were in default of their contracts with QST Energy as a~~ ~~result~~Segments of not paying QST Energy for energy delivered. QST Energy filed two suits in the U.S. District Court, Central District of Illinois, seeking payment. In March 1999, the customers filed a suit in California Superior Court, Alameda County, California, alleging that QST Energy was in breach of the contract. This suit was subsequently removed to U.S. District Court, Northern District of California. The two suits filed by QST Energy in the U.S. District Court, Central District of Illinois, were consolidated with the suit in the U.S. District Court, Northern District of California. In December 2000, the two customers filed counterclaims against QST Energy. On July 19, 2001, QST Energy and the two customers signed a settlement agreement and mutual release which resolved all of the pending lawsuits. A cash settlement of $6 million was paid to QST Energy and applied against the accounts receivable balance at QST Energy, which was $13 million at June 30, 2001. CILCORP had reserved $4.5 million as a preacquisition contingency related to this litigation. Consequently, the net write-off during the third quarter will be approximately $2.5 million.Business

AsCILCORP a result of abnormally warm weather during July 1999, CILCO incurred $33 million of generation and purchased power costs which are subject to recovery from electric retail customers through the Fuel Adjustment Clause (FAC)Inc. Of ~~this amount, $10 million was recovered in July 1999~~ and ~~$23 million remained unrecovered at the end of July 1999. CILCO's FAC allowed it to pass on to~~ customers the cost of unrecovered fuel and purchased power costs in the next calculated month's FAC factor. In this instance, on September 1, 1999, the ICC approved a request by CILCO to charge certain customers over a 12-month period (without interest), beginning in September 1999. In addition, CILCO requested and received ICC permission to allow the larger industrial and commercial customers the option to pay their respective shares of the July underrecovery, which were billed in September, over a period of up to 12 months (without interest) after making appropriate arrangements with CILCO. Also, under the FAC, the underrecovered costs of fuel and purchased power for a particular month are both treated as adjustments to cost of fuel expense. Recovery of the fuel and purchased power costs from all customer classes was completed during 2000.Subsidiaries

InSix ~~early~~Months ~~2000, the ICC began its annual review of the previous year's~~Ended ~~FAC collections. An ICC Hearing~~ ~~Examiner~~June ~~conducted hearings throughout 2000. Testimony was filed by CILCO~~30, the ICC staff and parties who had intervened in the proceeding and was followed by cross-examination of witnesses. ICC staff and intervenors had recommended during these hearings that up to $22.4 million be refunded to CILCO's customers. On November 6, 2000, the ICC Hearing Examiner issued a Proposed Order recommending that $3.4 million be refunded to CILCO's customers.2002

At its meeting on December 20, 2000, the ICC issued an order that modified the Hearing Examiner's Proposed Order. The December 20 ICC pronouncement ordered CILCO to refund $20.9 million to customers in addition to the $3.4 million proposed by the Hearing Examiner. These refunds would have been made by adjusting the February 2001 FAC recovery factor and continuing the adjustment in subsequent months until the entire amount was refunded to customers. CILCO strongly disagrees with the ICC order and believes, among other things, that it conflicts with federal law. The Federal Energy Regulatory Commission (FERC) previously reached a different conclusion with respect to the issues giving rise to the $20.9 million refund. The ICC's order fails to recognize the preemptive jurisdiction of FERC. The ICC's order to refund $20.9 million also results in a duplication of a portion of the Hearing Examiner's previously recommended $3.4 million refund. CILCO petitioned the ICC for a rehearing and a stay of the refund order. The ICC granted CILCO's request for a rehearing and stayed the refund order.

	CILCO Electric			CILCO Gas		CILCO Other		Other Businesses			Discont. Oper.			Total
	(In thousands)

Revenues	$	178,769		$	118,199	$	50,187	$	29,721		$	—		$	376,876
Interest income	—			—		46		306			—			352
Total	178,769			118,199		50,233		30,027			—			377,228
Operating expenses	133,491			96,624		43,100		26,880			—			300,095
Depreciation and amortization	24,141			11,204		—		702			—			36,047
Total	157,632			107,828		43,100		27,582			—			336,142
Interest expense	7,839			2,944		—		22,071			—			32,854
Preferred stock dividends	—			—		1,079		—			—			1,079
Fixed charges and other expenses	(647		)	—		667		—			—			20
Total	7,192			2,944		1,746		22,071			—			33,953
Income (loss) from continuing oper. before income taxes	13,945			7,427		5,387		(19,626		)	—			7,133
Income taxes	4,675			2,980		1,745		(8,402		)	—			998
Net income (loss) from continuing oper.	9,270			4,447		3,642		(11,224		)	—			6,135

Effect of discontinued oper.	—			—		—		—			(12		)	(12		)
Segment net income (loss)	$	9,270		$	4,447	$	3,642	$	(11,224	)	$	(12	)	$	6,123

~~The~~See ~~ICC issued~~Notes ~~an order on the rehearing on July 5, 2001. This order requires CILCO~~ to ~~refund a total of $21.9~~ ~~million. On July 24, 2001, CILCO filed~~ aConsolidated ~~motion~~Financial ~~with the ICC to stay this order, to allow time for CILCO to complete and file a settlement resolving this and other issues relating to prior and future fuel costs~~Statements. On July 31, 2001, the ICC granted CILCO’s request to stay the July 5 order through August 24, 2001. On August 3, 2001, CILCO petitioned the ICC for a rehearing of the July 5 order to preserve its legal alternatives. CILCO also filed a settlement agreement resolving issues related to the 1999 and 2000 FAC filings. As part of the settlement, CILCO agrees to refund $17.8 million related to the 1999 FAC and $2.6 million related to the 2000 FAC. These refunds will be paid over a six month period plus accrued interest on the unpaid balance. As a condition of the settlement agreement, CILCO also agrees to file a petition to eliminate the FAC within 21 days of an order approving the settlement. Elimination of the FAC is a prerequisite to utility restructuring, as provided for in the Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law). Elimination of the FAC will expose the Company to market risk with respect to the cost of fuel and purchased power required to serve native load customers.

The refund required under either the July 5 order or the settlement, if approved, would have a material effect upon the Company. While the Company cannot predict the ultimate outcome of these matters, management does not at this time consider it probable that the ICC will approve the settlement, and will thus not refund the $17.8 million related to the 1999 FAC. The Company has reserved the right to, and will, take any legal action necessary to challenge the July 5 order if the settlement is not approved. Accordingly, no reserve for the refunds has been recorded in the Company’s financial statements, other than a $4 million pre-acquisition contingency recorded in 2000.13

~~NOTE~~Statements ~~3. Accounting~~of Segments ~~for~~of ~~Price Risk Management Activities~~Business

CILCORP ~~utilizes commodity futures contracts, options and swaps in the normal course of its non-regulated natural gas and electric business activities to reduce market or price risk~~Inc. ~~Gains and~~ losses arising from derivative financial instrument transactions, related to non-regulated activities, which hedge the impact of fluctuations in energy prices are recognized in income concurrent with the related purchases and ~~sales~~ ~~of the commodity. If a derivative~~ financial instrument contract is terminated because it is probable that a transaction or forecasted transaction will not occur, any gain or loss as of such date is immediately recognized. CILCORP is subject to commodity price risk for deregulated sales to the extent that energy is sold under firm price commitments. Due to market conditions, at times CILCORP may have unmatched commitments to purchase and sell energy on a price and quantity basis. Physical and derivative financial instruments give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular commitment. Market risks are monitored to ensure compliance with the Company's risk management policies, including limits to the Company's total net exposure at any time.Subsidiaries

~~The~~Six ~~Company adopted~~Months ~~Statement of Financial Accounting Standards No. 133, "Accounting~~Ended ~~for Derivative Instruments and Hedging Activities" (SFAS 133) on January~~ 1,June ~~2001~~30, and recorded the effects of implementation in Other Comprehensive Income (OCI) as a change in accounting principle. The amount recorded as OCI reflects the mark-to-market value of fixed price derivative financial instruments representing hedges of natural gas commitments through December 2001. These derivatives are related to non-regulated activities and are being accounted for as fully-effective cash-flow hedges. The balance in OCI, as of January 1, 2001, related to the implementation of SFAS 133, was an after-tax gain of $1,667,800.

Gains/losses on non-regulated activities are reflected in operating results as commitments are fulfilled and the related derivative financial instruments are settled. The net loss reflected in operating results from derivative financial instruments for non-regulated activities for the quarter ended June 30, 2001, was $479,800 for natural gas (included in Gas Purchased for Resale). There were no outstanding derivative financial instruments for electricity during the quarter ended June 30, 2001. The previously recorded gain/loss associated with these settled derivative financial instruments was removed from OCI. The open derivative positions are then marked-to-market through OCI. The net effect of these adjustments was to record an after-tax loss in OCI in the amount of $4,704,100 for the quarter ended June 30, 2001. The after-tax balance in OCI associated with these open derivative positions at June 30, 2001, was $4,953,200. This portion of OCI reflects hedges of natural gas sales of 5,720,000 mmBtu or 5.7 Bcf for commitments through March 2003.

	CILCO Electric			CILCO Gas		CILCO Other		Other Businesses			Total
	(In thousands)

Revenues	$	181,299		$	200,695	$	39,004	$	25,330		$	446,328
Interest income	—			—		280		155			435
Total	181,299			200,695		39,284		25,485			446,763
Operating expenses	134,336			175,916		32,289		19,842			362,383
Depreciation and amortization	23,524			10,945		—		8,441			42,910
Total	157,860			186,861		32,289		28,283			405,293
Interest expense	8,664			3,471		—		23,531			35,666
Preferred stock dividends	—			—		1,079		—			1,079
Fixed charges and other expenses	(44		)	—		618		—			574
Total	8,620			3,471		1,697		23,531			37,319
Income (loss) before income taxes	14,819			10,363		5,298		(26,329		)	4,151
Income taxes	5,819			4,125		1,710		(8,418		)	3,236
Segment net income (loss)	$	9,000		$	6,238	$	3,588	$	(17,911	)	$	915

InSee ~~May~~Notes ~~2001, the Company implemented a winter 2001-2002 hedging strategy related~~ to ~~regulated gas activities.~~ ~~This strategy utilizes collars (a combination of a put option and a call~~ ~~option)~~Consolidated ~~and~~Financial ~~futures to help protect customers who are charged the Company's Purchased Gas Adjustment (PGA) from large price fluctuations~~Statements. The Company enters into these collars based on pre-defined criteria and only when entering into the collar produces a premium credit. This premium credit is being deferred until the month of delivery. This strategy does not result in any income impacts since all gains/losses and premium credits will be passed along to the customer in the month of delivery. The Company is accounting for these hedges as cash-flow hedges and is recognizing the mark-to-market value in OCI, consistent with SFAS 133. In the month of delivery, any related mark-to-market value will be removed from OCI and charged/credited to the customer. For the quarter ended June 30, 2001, an after-tax mark-to-market loss of $1,915,400 was recorded in OCI. This portion of OCI reflects hedges of natural gas sales of 7,170,000 mmBtu or 7.2 Bcf for commitments through March 2002.

The FASB met in June 2001 and determined that certain electricity capacity contracts meet the "normal purchases and normal sales" exception as set forth in SFAS 138. The Company was not previously accounting for such contracts as derivatives, therefore this clarification reinforces the Company's current accounting practices with regard to capacity contracts.14

~~NOTE~~CILCORP 4INC. ~~Other~~ AND ~~Comprehensive~~ CENTRAL ~~Income~~ILLINOIS LIGHT COMPANY

~~Rollforward~~NOTES ofTO CONSOLIDATED ~~Accumulated~~FINANCIAL ~~Other Comprehensive Income—CILCORP Inc.~~STATEMENTS

	Pension			SFAS 133				Total
	(In thousands)
Accumulated other comprehensive loss—March 31, 2001 balance	$	(450	)		$	(249	)		$	(699	)
Other comprehensive loss—SFAS 133	—				(6,620		)		(6,620		)
Accumulated other comprehensive loss—June 30, 2001 balance	$	(450	)		$	(6,869	)		$	(7,319	)

(Unaudited)

~~Rollforward~~NOTE ~~of Accumulated Other Comprehensive Income—Central Illinois Light Company~~1. Introduction

	Pension			SFAS 133					Total
	(In thousands)
Accumulated other comprehensive loss—March 31, 2001 balance	$	(975	)		$	(249		)		$	(1,224		)
Other comprehensive loss—SFAS 133	—				(6,620			)		(6,620			)
Accumulated other comprehensive loss—June 30, 2001 balance	$	(975	)		$		(6,869	)		$		(7,844	)

The consolidated financial statements include the accounts of CILCORP Inc. (CILCORP or the Holding Company), Central Illinois Light Company (CILCO), QST Enterprises Inc. (QST) and its subsidiaries, QST Energy Inc. (QST Energy), and CILCORP Infraservices Inc. (CILCORP Infraservices), and CILCORP’s other subsidiaries (collectively, the Company), after elimination of significant intercompany transactions. The consolidated financial statements of CILCO include the accounts of CILCO and its subsidiaries, CILCO Exploration and Development Company, CILCO Energy Corporation, and Central Illinois Generation, Inc. CILCORP owns 100% of the common stock of its first-tier subsidiaries. In the fourth quarter of 1998, the operations of QST and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices Inc. - see Management’s Discussion and Analysis) were discontinued and, therefore, are being reported as discontinued operations in the financial statements. Prior year amounts have been reclassified on a basis consistent with the 2002 presentation.

On April 29, 2002, The ~~NOTE~~ 5AES Corporation (AES) announced an agreement with Ameren Corporation to sell 100 percent of its ownership interest in CILCORP and its subsidiaries. ~~Impact~~The transaction is subject to regulatory approvals by the Illinois Commerce Commission (ICC), the Federal Energy Regulatory Commission (FERC), the Federal Communications Commission (FCC), the Securities and Exchange Commission (SEC), and expiration of ~~Accounting~~the ~~Standards~~waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. AES expects the sale to close in the first quarter of 2003.

InThe ~~June~~accompanying unaudited ~~2001,~~consolidated ~~the~~financial ~~FASB~~statements ~~issued~~have ~~Statement~~been ofprepared ~~Financial~~according ~~Accounting~~to the ~~Standards~~ rules Noand regulations of the SEC. Although ~~141,~~the ~~"Business~~Company ~~Combinations"~~believes ~~(SFAS~~the ~~141)~~disclosures ~~and~~are ~~Statement of~~adequate ~~Financial~~to ~~Accounting~~make ~~Standards~~the information ~~No.~~presented ~~142~~not misleading, ~~"Goodwill~~these ~~and~~consolidated ~~Other~~financial ~~Intangible~~statements ~~Assets"~~ should ~~(SFAS~~be ~~142)~~read along with the Company’s 2001 Annual Report on Form 10-K.

~~SFAS~~In ~~141~~the ~~requires~~Company’s ~~that all business combinations be accounted for using~~opinion, the ~~purchase~~consolidated ~~method~~financial ~~and~~statements ~~applies~~furnished toreflect all ~~business~~normal ~~combinations initiated after~~and ~~June 30, 2001. Certain transition~~ ~~provisions~~recurring ~~apply~~adjustments tonecessary ~~business~~for ~~combinations~~a ~~for~~fair ~~which~~presentation of the ~~acquisition~~results ~~date was~~of ~~before~~ operations ~~July~~for 1,the ~~2001,~~periods ~~that~~presented. Operating ~~were~~results ~~accounted~~ for ~~using~~interim ~~the~~periods ~~purchase~~are ~~method. The Company has~~ not ~~determined~~necessarily ~~the~~indicative ~~impact,~~of if operating ~~any,~~results ~~that~~to ~~this~~be ~~statement~~expected ~~will~~for ~~have~~the onyear ~~its~~or ~~consolidated~~of ~~financial~~the ~~position~~Company’s orfuture ~~results~~ financial ~~of operations~~condition.

~~SFAS~~NOTE ~~142 requires that goodwill and intangible assets that have indefinite useful lives be tested at least annually for impairment rather than be amortized~~2. The provisions of SFAS 142 are required to be applied starting with fiscal years beginning after December 15, 2001. The Company is evaluating the impact of the adoption of this standard and has not yet determined the effect of adoption on its consolidated financial position or results of operations.Contingencies

~~Item~~On May 11, 2001, CILCO and Enron Power Marketing, Inc. (EPMI), a 2 subsidiary of Enron Corp. ~~Management's~~ ~~Discussion~~(Enron), entered into a new Master Agreement for electric purchases and ~~Analysis~~sales, which covered energy transactions scheduled for deliveries during the period of ~~Financial~~2001-2003. On ~~Condition~~November 30, 2001, CILCO notified EPMI that events of default had occurred under the Master Agreement and ~~Results~~declared the Master Agreement terminated effective December 20, 2001. Due to contractual provisions and EPMI’s and Enron’s actions, management does not believe CILCO will be required to pay any amount to Enron or its affiliates and has therefore recorded no liability for undelivered electric purchases. Enron and EPMI filed Chapter 11 bankruptcy petitions on December 2, 2001, in the U. S. Bankruptcy Court for the Southern District of ~~Operations~~New York. Thereafter, CILCO purchased replacement power to serve its retail customers which had previously been partially supported by the EPMI transactions. While the ultimate outcome is unpredictable, management does not believe that EPMI’s

CILCORP Inc. (CILCORP) is a wholly-owned subsidiary of The AES Corporation (AES). The financial condition and operating results of CILCORP Inc. and its subsidiaries (the Company) primarily reflect the operations of subsidiary Central Illinois Light Company (CILCO). On November 23, 1998, the Company announced that AES had offered to buy 100% of the Company's outstanding common stock for $65 per share, subject to CILCORP shareholder approval and various regulatory approvals. AES completed the acquisition of the Company on October 18, 1999.15

Indefaults ~~July~~under ~~2000,~~the ~~AES~~Master ~~announced plans to acquire IPALCO Enterprises~~Agreement, ~~Inc. (IPALCO),~~its afiling ~~utility~~for ~~holding company headquartered in Indianapolis,~~bankruptcy ~~Indiana. Following this announcement,~~ ~~AES~~protection, ~~indicated~~CILCO’s ~~that~~termination ~~as part~~ of the ~~SEC~~Master ~~approval process for the IPALCO transaction~~Agreement, ~~AES~~or ~~expected~~CILCO’s topurchase ~~restructure its ownership interests in CILCORP within a specified period~~ of ~~time in order to continue as an exempt holding~~ ~~company under the Public Utility Holding Company Act of 1935 (PUHCA). On March 23, 2001, AES received an order~~ ~~from~~replacement ~~the~~electricity ~~SEC~~will ~~which~~have ~~allowed~~a ~~AES'~~material ~~continued~~adverse ~~exemption~~effect ~~from~~on ~~PUHCA. The exemption order required AES to divest its ownership interests in~~ CILCO'’s ~~regulated utility assets within two years of~~ ~~the~~ financial ~~closing~~position ~~(March~~or ~~27,~~results ~~2001)~~ of ~~AES' acquisition of IPALCO~~operations.

~~Financial~~On ~~results~~May ~~reflect~~4, ~~application~~2001, ofCILCO ~~the~~and ~~purchase~~Enron ~~method~~subsidiary ofEnron North America Corp. ~~accounting~~ (ENA) entered into a natural gas transaction for daily deliveries not to ~~the~~exceed 10,000 ~~merger~~MMBtu per day during calendar year 2002. ~~Under~~CILCO has received no natural gas deliveries pursuant to this ~~method~~ transaction. On October 24, ~~the~~2001, ~~purchase~~CILCO and ~~price~~ENA isentered ~~allocated~~into toa short-term natural gas transaction giving CILCO the right ~~fair~~to ~~market~~call ~~value~~upon ofENA for the ~~assets acquired~~delivery ~~and~~of 10,000 MMBtu per day during the period ~~liabilities~~from ~~assumed~~November 1, 2001, through March 31, 2002. Since late November 2001, ENA was unable to deliver natural gas ~~Any~~ when ~~excess~~called ofupon ~~the~~by ~~purchase~~CILCO. ENA’s failure ~~price~~to ~~over~~deliver ~~the~~natural ~~fair~~gas ~~value~~is an event of default under the ~~net~~Master ~~assets~~Firm ~~acquired~~ Sales isAgreement ~~allocated~~governing tothe ~~goodwill~~October transaction. AsOn ~~a result~~December 2, ~~CILCORP~~2001, ~~has~~ENA ~~recorded~~filed ~~purchase~~a ~~accounting~~Chapter ~~fair~~11 ~~value~~bankruptcy ~~adjustments to~~petition ~~plant~~ in ~~service,~~the ~~pension~~U. ~~and~~S. ~~other~~Bankruptcy ~~post-retirement~~Court ~~liabilities,~~for ~~an out-~~the Southern District of~~-market~~ ~~long-term~~New ~~coal~~York. To ~~contract~~the extent that it has been necessary, CILCO ~~and~~has ~~other~~purchased ~~balance~~replacement ~~sheet~~natural ~~items~~gas. ~~After~~ Because ~~reflecting~~ these ~~adjustments,~~transactions ~~the Company~~are ~~also~~part ~~recorded~~of ~~goodwill. See~~a larger and more diversified ~~Note~~ natural 1gas supply portfolio and are subject to the ~~Consolidated~~Purchased ~~Financial~~Gas ~~Statements~~Adjustment clause, ~~for~~Management ~~further~~does ~~discussion~~not ~~related~~ believe ENA’s failure to ~~purchase~~supply ~~accounting. The~~natural ~~adjustments~~gas or its ~~are~~ subsequent ~~reflected~~bankruptcy infiling ~~CILCORP's~~will have a material adverse effect on CILCO’s financial ~~statements~~position or results of operations.

~~Due~~NOTE to uncertainties related to electric deregulation across the country, the illiquidity of certain energy markets, and the Company's acquisition by AES, the Company intends to focus on the opportunities in the Illinois energy market resulting from the deregulation of electricity under the Electric Service Customer Choice and Rate Relief Law of 1997 (see Competition)3. ~~This~~Accounting ~~law~~for ~~enables~~Price ~~CILCO,~~Risk ~~the Company's~~Management ~~regulated public utility that generates and distributes electricity and~~ purchases, transports and distributes natural gas, to serve Illinois customers outside its traditional Central Illinois service territory. As a result of these events, the Company reported the results of QST and its subsidiaries (excluding CILCORP Infraservices Inc. and residual interests in ESE Land Corporation) as discontinued operations (see Results of Operations – QST Enterprises Discontinued Operations).Activities

The ~~Other~~Company ~~Businesses~~utilizes commodity ~~segment~~futures ~~includes~~contracts, options and swaps in the ~~operations~~normal course of ~~the~~its natural ~~Holding~~gas and electric business activities to reduce market or price ~~Company~~ risk. Since ~~itself~~January ~~(Holding~~1, ~~Company)~~2001, ~~its~~all derivative ~~investment~~transactions ~~subsidiary,~~have ~~CILCORP~~been ~~Investment~~accounted for under Statement of Financial ~~Management~~ Accounting ~~Inc~~Standards No. 133, “Accounting for Derivative Transactions and Hedging Activities” (~~CIM~~SFAS 133), ~~CILCORP~~as ~~Ventures~~interpreted ~~Inc~~and amended. SFAS 133 requires that an entity recognize all derivatives (~~CVI~~including derivatives embedded in other contracts), as defined, as either assets or liabilities on the balance sheet and ~~CILCORP~~measure ~~Infraservices~~those ~~Inc~~ instruments at fair value. Changes in the derivative’s fair value are to be recognized currently in earnings, unless specific hedge accounting criteria are met. All of the Company’s derivatives qualify as cash flow hedges. Under SFAS 133, the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedge is reported as a component of Other Comprehensive Income (OCI) until the hedged transaction affects earnings, at which ~~provides~~time ~~utility~~the ~~infrastructure~~amount ~~operation~~accumulated in OCI is reclassified into earnings. In addition, under SFAS 133, any ineffective portion of the gain or loss is recognized in earnings immediately. All of the Company’s cash flow hedges are highly effective, and therefore, ~~maintenance~~all ~~services~~gains and losses are recorded in OCI until the hedged transaction is recorded in earnings. If a cash flow hedge is terminated because it is probable that the hedged transaction will not occur, the related balance in OCI as of such date is immediately recognized in earnings. If a cash flow hedge is terminated early for other reasons, the related balance in OCI as of the termination date is recognized in earnings concurrently with the related hedged transaction.

Gains/losses on ~~Forward~~ derivatives that hedge non-~~Looking~~regulated ~~Information~~activities are reflected in operating results when the hedged commitments are recognized. The net gain reflected in operating results from derivative financial instruments for non-regulated activities for the quarter ended June 30, 2002, was $0.3 million for natural gas (included in Gas Purchased for Resale). The previously recorded gain/loss associated with these settled derivative financial instruments was removed from OCI. The open derivative positions are then marked-to-market through OCI. The net effect of these adjustments was to record an after-tax loss in OCI in the amount of $0.3 million for the quarter ended June 30, 2002. The after-tax balance in OCI associated with these open derivative positions

Forward-looking information is included in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Certain material contingencies are also described in Note 2 to the Consolidated Financial Statements.16

~~Some~~at ~~important~~June ~~factors~~30, ~~could~~2002, ~~cause actual results or outcomes to differ~~was ~~materially~~ $(0.3) ~~from those expressed or implied in MD&A~~million. ~~The~~This ~~business~~portion ~~and profitability~~ of ~~CILCORP~~OCI ~~and its subsidiaries are influenced by economic and geographic factors,~~ ~~including~~reflects ~~ongoing~~hedges ~~changes~~of innatural ~~environmental~~gas ~~laws~~sales ~~and weather conditions; the extent and pace~~ of ~~development~~1,700,000 ofMMBtu ~~competition~~ for ~~retail~~commitments ~~and wholesale energy~~through ~~customers; changes in technology; changes in company-wide operation and plant~~ ~~availability~~February ~~compared~~2004. Approximately to$0.3 ~~historical performance and changes in historical~~million ~~operating cost structure, including changes in various costs and expenses;~~ ~~pricing and transportation~~ of ~~commodities;~~OCI ~~market~~related ~~supply~~to ~~and demand for energy and energy~~ derivative financial instruments; ~~inflation;~~as ~~capital~~of ~~market conditions;~~June ~~and~~30, ~~environmental protection and compliance costs. Prevailing governmental policies~~2002, ~~statutory~~is ~~changes,~~ expected ~~and regulatory actions with respect~~ to ~~rates,~~be ~~tariffs,~~recognized ~~industry structure~~as ~~and~~an ~~recovery~~increase ofto ~~various~~operating earnings ~~costs~~over ~~incurred by CILCO in~~ the ~~course~~next oftwelve ~~its business~~months ~~and~~based ~~increasing~~on ~~wholesale~~market ~~and~~prices ~~retail~~as ~~competition in the electric and~~of ~~gas~~ June ~~business~~30, ~~affect its earnings~~2002. ~~All such~~The ~~factors~~actual ~~are difficult to predict, contain uncertainties that may~~amount ~~materially~~ recognized ~~affect~~in ~~actual~~earnings ~~results~~will ~~and,~~be tobased aon ~~significant~~the ~~degree,~~market ~~are~~conditions ~~beyond~~at the ~~control~~ oftime ~~CILCORP and its subsidiaries.~~ the ~~CILCORP and its subsidiaries undertake no obligation to publicly update~~ orderivatives ~~revise~~are ~~any forward-looking statements, whether as a result of changes in actual results, assumptions or other factors~~settled.

~~Capital~~In May 2001, the Company ~~Resources~~ implemented &a ~~Liquidity~~winter 2001-2002 hedging strategy related to regulated gas activities. This strategy utilized collars (a combination of a put option and a call option) and futures to help protect customers who are charged the Company’s Purchased Gas Adjustment (PGA) from large price fluctuations. The Company has recognized the mark-to-market value in OCI, consistent with SFAS 133. In the month of delivery, any related mark-to-market value is removed from OCI and charged/credited to the customer. This program was completed in March 2002. Beginning in March 2002, the Company is hedging its injections into storage fields utilizing collars and futures to further hedge the cost for customers charged the PGA. In May 2002, the Company began its winter 2002-2003 hedge program which is similar to the winter 2001-2002 program.

~~The~~Beginning ~~Company~~with ~~believes~~the ~~that~~second quarter ~~internal~~of 2002, gains and ~~external~~losses ~~sources~~on ofPGA-related ~~capital which~~positions are being recorded as regulatory assets or ~~are~~liabilities ~~expected~~in toaccordance bewith ~~available~~Statement toof Financial Accounting Standards No. 71, “Accounting for the ~~Holding~~Effects ~~Company~~of ~~and~~Certain ~~its~~Types of ~~subsidiaries~~ Regulation” ~~will~~(SFAS be71), ~~adequate~~as opposed to ~~fund~~being ~~its~~recorded ~~capital~~in ~~expenditures~~OCI. An after-tax gain of $0.2 million was reclassified from OCI to regulatory liabilities and was grossed-up for taxes, resulting ~~pay~~in ~~its~~a regulatory liability of $0.3 million at April 1, 2002. For the quarter ended June 30, 2002, a ~~financial~~ mark-to-market ~~obligations~~loss of $0.3 million was recorded in the regulatory liability for all PGA-related derivatives, ~~meet~~reducing ~~working~~the ~~capital~~regulatory ~~needs~~liability ~~and~~to ~~retire~~$0, meaning orthese ~~refinance~~positions ~~debt~~are at market. as This itreflects ~~matures~~hedges of natural gas sales of 500,000 MMBtu for commitments through March 2003.

~~CILCORP~~In December 2001, the Financial Accounting Standards Board (FASB) revised its earlier conclusion, Derivatives Implementation Group (DIG) Issue C-15, related to contracts involving the purchase or sale of electricity. Contracts for the purchase or sale of electricity, both forward and option contracts, including capacity contracts, may qualify for the normal purchases and sales exemption and are not required to be accounted for as derivatives under SFAS 133. In order for contracts to qualify for this exemption, they must meet certain criteria, which include the requirement for physical delivery of the electricity to be purchased or sold under the contract only in the normal course of business. Additionally, contracts that have a price based on an underlying that is not clearly and closely related to the electricity being sold or purchased or that are denominated in a currency that is foreign to the buyer or seller are not considered normal purchases and normal sales and are required to be accounted for as derivatives under SFAS 133. This revised conclusion was effective beginning April 1, 2002. The Company has determined that its physical contracts qualify for the normal purchases and sales exemption as redefined in DIG Issue C-15 and are not to be accounted for as derivatives under SFAS 133.

CILCORP is currently authorized by its Board of Directors to borrow up to $60 million on a short-term basis. On June 30, 2001, CILCORP had committed bank lines of credit of $50 million, of which $31 million was used.17

InNOTE ~~October 1999, CILCORP issued $225 million of 8~~4.~~7% senior notes (due 2009) and $250 million of 9.375% senior notes (due 2029).~~ ~~Along~~Other ~~with~~Comprehensive equity funds provided by AES, the proceeds of the notes were used by AES to acquire all outstanding shares of CILCORP common stock for approximately $886 million, to pay transaction costs related to the acquisition, and to retire short-term debt.Income

~~CILCORP~~Rollforward ~~had $17.5 million~~ of ~~medium-term~~Accumulated ~~notes~~Other ~~outstanding~~Comprehensive atIncome ~~June 30, 2001. With the issuance of the senior notes in October 1999,~~ -CILCORP ~~can no longer issue debt under its medium-term note program~~Inc.

CILCO

	Pension			SFAS 133			Total
	(In thousands)

Accumulated other comprehensive income (loss) - March 31, 2002 balance	$	(9,333	)	$	771		$	(8,562	)

Other comprehensive income -
Pension	—			—			—
SFAS 133	—			(440		)	(440		)
Accumulated other comprehensive income (loss) - June 30, 2002 balance	$	(9,333	)	$	331		$	(9,002	)

~~Capital~~Rollforward ~~expenditures totaled $24.5 million for the six months ended June 30, 2001. Capital expenditures are anticipated to be approximately $25.6 million for the remainder~~ of ~~2001~~Accumulated ~~and~~Other ~~are~~Comprehensive ~~currently~~Income ~~estimated~~- ~~to be $112~~Central ~~million in 2002. The projected increase~~ inIllinois ~~2002~~Light ~~is primarily due to installation of NOx reduction equipment.~~Company

In the first quarter of 2001, CILCO obtained two short-term bank loans totaling $25 million to finance the purchase of natural gas. The additional working capital was necessary as a result of the significant increase in natural gas prices relative to the timing of the recovery of the costs through the Purchased Gas Adjustment (PGA). The bank loans matured in the second quarter of 2001. In the third quarter of 2001, CILCO obtained an additional $15 million short-term bank loan. CILCO expects to issue commercial paper periodically during 2001, and is currently authorized by its Board of Directors to issue up to $150 million of short–term debt. At June 30, 2001, committed bank lines of credit totaled $100 million, all of which were unused except in support of commercial paper issuance. CILCO had $80.4 million of commercial paper outstanding at June 30, 2001. During 2001, CILCO expects to continue to support commercial paper issuance with its bank lines of credit. CILCO plans to finance its 2001 and 2002 capital expenditures primarily with funds provided by operations. CILCORP's parent, AES, may also provide equity capital to support CILCO's capital expenditures or other financing requirements. Future funds provided by operations may be affected by the deregulation of the electric and natural gas utility industries (see Competition). CILCORP is also evaluating other financing alternatives to supplement or replace current short-term financing as well as to provide for long-term financing of 2002 capital expenditures.

	Pension			SFAS 133			Total
	(In thousands)

Accumulated other comprehensive income (loss) - March 31, 2002 balance	$	(1,112	)	$	771		$	(341	)

Other comprehensive income -
Pension	—			—			—
SFAS 133	—			(440		)	(440		)
Accumulated other comprehensive income (loss) - June 30, 2002 balance	$	(1,112	)	$	331		$	(781	)

~~CIM~~18

AtNOTE ~~June~~5. Impact ~~30, 2001, CIM had outstanding debt~~ of ~~$15.8~~Accounting ~~million, borrowed from CILCORP.~~Standards

~~CVI~~In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), and Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143).

AtSFAS ~~June~~142 30requires that goodwill and intangible assets that have indefinite useful lives be tested at least annually for impairment rather than be amortized. The provisions of SFAS 142 were required to be applied starting with fiscal years beginning after December 15, 2001. The Company adopted SFAS 142 on January 1, 2002, ~~CVI~~and, ~~had~~as ~~outstanding~~a ~~debt~~result, annual goodwill amortization of approximately $515.1 3 million has ceased. The initial impairment assessment has been performed, ~~borrowed~~utilizing the requirements of SFAS ~~from~~ 142, ~~CILCORP~~and the Company has determined that its fair value exceeds its carrying value and therefore, goodwill for the Company is considered not impaired. The Company has identified the following four reporting units under the provisions of SFAS 142: CILCO Electric, CILCO Gas, CILCO Other and Other Businesses. The Company has completed the allocation of goodwill to the reporting units as follows:

Competition

	CILCO Electric		CILCO Gas		CILCO Other		Other Businesses		Total
	(In thousands)

Goodwill, net of accumulated amortization of $33,753, as of December 31, 2001	$	350,256	$	132,514	$	2,118	$	94,323	$	579,211

~~CILCO,~~SFAS as143 ~~a regulated public utility, has an obligation to provide~~addresses ~~service to retail customers within its defined service territory; thus, CILCO~~ ~~has~~financial ~~not~~accounting ~~generally~~and ~~been~~reporting ~~in competition with other public utilities~~ for ~~retail electric~~obligations orassociated ~~gas~~with ~~customers in these areas.~~ the ~~However,~~ retirement ~~the passage~~ of ~~the~~tangible ~~Electric~~long-lived ~~Service~~assets ~~Customer Choice~~ and ~~Rate Relief~~the ~~Law~~associated ofasset ~~1997~~retirement costs. SFAS ~~(Customer~~143 ~~Choice~~is ~~Law)~~effective ~~began~~for financial astatements ~~transition~~issued ~~process~~for tofiscal ayears ~~fully competitive~~beginning ~~market~~after ~~for~~June ~~electricity~~15, ~~in Illinois~~2002. InThe ~~addition,~~Company ~~electricity~~has ~~and~~not ~~natural~~yet ~~gas~~quantified ~~compete with other forms~~the ~~of energy available to customers. For~~ ~~example~~effect, ~~within~~if ~~the~~any, ~~City~~ of ~~Springfield,~~this ~~CILCO's~~new ~~natural~~standard ~~gas~~on ~~business competes with~~ the ~~City's~~consolidated ~~municipal~~financial ~~electric system to provide customer energy needs~~statements.

~~Primarily~~Statement asof Financial aAccounting ~~result~~Standards ofNo. 144, “Accounting for the ~~Customer~~Impairment ~~Choice~~or Disposal ~~Law~~of Long-Lived Assets” (SFAS 144), ~~the~~was ~~electric~~issued ~~industry~~ in ~~Illinois~~August ~~will~~2001, ~~change~~and ~~significantly~~is effective ~~during~~for ~~the~~financial ~~coming~~statements ~~years~~issued atfor ~~both~~fiscal ~~the~~years beginning after ~~wholesale~~ December 15, 2001, and ~~retail~~interim ~~levels~~periods within those fiscal years. AsSFAS ~~of December 31,~~144 ~~2000,~~addresses ~~all~~financial ~~non-residential~~accounting ~~customers~~and reporting ~~have~~for the ~~ability~~impairment ~~to choose~~or ~~their~~disposal ~~electric~~of ~~supplier~~long-lived assets. ~~Residential~~ The ~~electric~~adoption ~~customers~~of ~~will~~SFAS be144 ~~able~~has tonot ~~choose~~had ~~their electric~~a ~~supplier~~ significant impact on ~~May 1,~~the ~~2002~~Company’s financial position or results of operations.

IfStatement aof ~~customer~~ Financial ~~chooses~~Accounting toStandards ~~leave~~No. ~~its~~145, ~~present~~“Rescission ~~electricity~~of ~~supplier,~~FASB ~~that~~Statements ~~utility~~No. ~~will~~4, ~~collect~~ 44, ~~a fee for delivering power~~ and ~~may~~64, ~~assess~~Amendment anof ~~additional~~FASB ~~transition charge~~Statement ~~on the customer~~No. ~~This~~ ~~collection methodology~~13, ~~must be filed with~~ and ~~approved~~Technical ~~by the Illinois Commerce Commission~~Corrections” (~~ICC~~SFAS 145), ~~and~~was isissued ~~designed~~in toApril ~~help~~2002. The ~~utilities~~provisions ~~recover~~of aSFAS ~~portion~~145 ofrelated to the ~~costs~~rescission of ~~past~~FASB Statement ~~investments~~ No. ~~made~~4 ~~under~~shall abe ~~regulated~~applied ~~system. The~~in ~~transition~~fiscal ~~charge~~years ~~will~~beginning ~~usually~~after ~~reduce~~May a15, ~~customer's~~2002. All ~~economic incentive~~other toprovisions ~~switch~~of ~~suppliers. Transition~~this ~~charges~~Statement ~~may~~are effective befor ~~collected~~financial ~~through~~statements ~~2006~~issued ~~(2008~~on ~~upon~~or ~~the~~after ~~ICC's finding~~May ~~that~~15, a2002. Management ~~utility's~~has ~~financial~~determined ~~condition~~that isadoption ~~impaired~~of SFAS ~~and~~145 ~~the~~has ~~utility~~no ~~meets other~~material ~~requirements~~effect ~~specified~~on in the ~~Customer~~Company’s ~~Choice~~consolidated ~~Law)~~financial statements.

On March 9, 2000, CILCO filed with the ICC revised tariff sheets eliminating the collection of the customer transition charge effective March 17, 2000. At a March 15, 2000, hearing, the ICC approved CILCO's revised tariffs, thereby eliminating the collection of any customer transition charge. CILCO cannot re-establish the collection of a transition charge until it files and the ICC approves revised tariff sheets that reinstate a transition charge.19

~~The~~Item ~~Customer Choice Law also requires electric base rate reductions that vary by utility. CILCO reduced its residential base rates by~~ 2~~% in August 1998 and by 2% in October 2000 and must reduce base rates by an additional 1% in October 2002~~. ~~Also, CILCO'~~ Management’s ~~return~~Discussion onand ~~common~~Analysis ~~equity~~of ~~will,~~Financial ~~in general, be capped (the Equity Cap) at an index (a 12-month average yield~~ ~~for~~Condition ~~30 year U.S. Treasury bonds plus 8% for calendar years 1998~~ and ~~1999~~Results and a 12 month-average yield for U.S. Treasury bonds plus 9% for calendar years 2000 through 2004) plus 1.5 percentage points. If CILCO's two-year average return on common equity exceeds the two–year average of ~~the Equity Cap, fifty percent of the earnings in excess of the average Equity Cap must be refunded to customers in the following year.~~Operations

OnCILCORP ~~June 30,~~Inc. ~~1999,~~(CILCORP) ~~Senate~~is ~~Bill 24 (~~a ~~clarification~~wholly-owned ~~and~~subsidiary ~~technical correction~~ of ~~the~~The ~~Customer Choice Law) was signed into law. This law allows certain utilities, including~~AES ~~CILCO, to increase the Equity Cap by an additional 2% over the Equity Cap~~ ~~provided~~Corporation ~~under the Customer Choice Law, for the period 2000 through 2004~~(AES). The ~~increase in the Equity Cap is allowed in~~financial ~~exchange~~ condition ~~for~~and ~~these~~operating ~~utilities~~results ~~offering choice~~ of ~~electricity~~CILCORP ~~suppliers to selected manufacturing customers on June 1, 2000,~~ and toits ~~the~~subsidiaries ~~remaining manufacturing customers on October 1, 2000, earlier than previously allowed under~~ (the ~~Customer Choice Law.~~ Company) ~~Utilities selecting this option must also waive the right to seek a~~ ~~two-year~~primarily ~~extension~~reflect on the ~~collection~~operations of ~~transition~~subsidiary ~~charges. On~~Central ~~April 13,~~Illinois ~~2000,~~Light ~~CILCO filed revised~~Company ~~tariff sheets with the ICC to make these selected customers eligible for choice~~ ~~on June 1, 2000, in order to increase the equity cap by 2%, as outlined in Senate Bill 24~~(CILCO).

~~With~~In ~~the~~July ~~enactment~~2000, ofAES ~~the~~announced ~~Customer~~plans ~~Choice~~to ~~Law,~~acquire ~~electric~~IPALCO ~~generation~~Enterprises, inInc. ~~Illinois~~ (IPALCO), ~~will~~a ~~become~~utility ~~deregulated~~holding ~~and~~company ~~competitive~~headquartered in Indianapolis, Indiana. AsFollowing athis ~~result~~announcement, AES indicated that as part of the ~~accounting~~Securities ~~principles~~and ~~applicable~~Exchange Commission (SEC) approval process for the IPALCO transaction, AES expected to restructure its ~~rate-regulated~~ ownership ~~enterprises~~interests ~~will~~in noCILCORP ~~longer~~within ~~apply~~a specified period of time in order to continue as an exempt holding company under the ~~electric~~Public ~~generation~~Utility Holding Company ~~portion~~ Act of ~~CILCO's~~1935 ~~business~~(PUHCA). ~~Also~~On March 23, ~~the~~2001, ~~cost~~ AES ofreceived ~~any~~an ~~assets~~order ~~for~~from the SEC which ~~recovery~~allowed isAES’ ~~impaired~~continued byexemption ~~the~~from PUHCA. The ~~transition~~exemption order required AES to adivest ~~competitive~~its ownership interests in CILCO’s regulated utility assets within ~~marketplace~~ two ~~must~~years beof ~~written~~the ~~off~~closing (March 27, 2001) of AES’ acquisition of IPALCO. ~~CILCO does~~On ~~not~~April ~~believe~~29, ~~its~~2002, ~~electric~~AES ~~generating~~announced ~~asset~~an agreement ~~values~~with Ameren Corporation to besell ~~impaired~~100 percent of its ownership interest in CILCORP and its subsidiaries. ~~Its~~The transaction ~~ability~~is subject to ~~keep~~regulatory ~~total~~approvals ~~production~~by ~~costs~~the Illinois Commerce ~~competitive~~ Commission in(ICC), athe ~~deregulated~~Federal ~~market~~Energy ~~will~~Regulatory ~~determine~~Commission ~~whether~~(FERC), the Federal Communications Commission (FCC), the SEC, and toexpiration ~~what~~of ~~extent~~the waiting period under the ~~value~~Hart-Scott-Rodino ofAntitrust ~~these~~Improvements ~~assets~~Act. AES ~~may~~expects bethe ~~impaired~~sale to close in the ~~future~~first quarter of 2003.

~~With electric~~The ~~choice~~Other ~~beginning~~Businesses onsegment ~~October 1,~~includes ~~1999,~~the ~~for~~operations ~~its~~of ~~industrial~~the ~~customers~~Holding ~~and~~ Company ~~some~~itself of(Holding Company), its ~~commercial~~investment ~~customers~~subsidiary, ~~and~~CILCORP ~~with all other non-residential~~Investment ~~customers~~ Management ~~being~~Inc. ~~able~~(CIM), toCILCORP ~~choose~~Ventures ~~their~~Inc. ~~electric supplier on December 31~~(CVI), ~~2000,~~ ~~CILCO~~and ~~has~~CILCORP ~~entered into multi–year contracts with targeted customers~~Infraservices ~~representing~~ Inc. ~~approximately~~which ~~45%~~provides ofutility ~~total~~infrastructure ~~2000~~operation ~~electric~~and ~~kWh sales to non–residential~~maintenance ~~customers~~ services. ~~These~~The ~~contracts,~~results ~~most~~ of ~~which~~ ~~expire~~QST ~~from~~and ~~2001 to 2002, were designed to capture a significant portion~~its of subsidiaries ~~the~~(excluding ~~margin~~ESE ~~that~~Land ~~the~~Corporation ~~customers~~and ~~paid~~CILCORP toInfraservices ~~CILCO in the most recent twelve months~~Inc. ~~CILCO is either negotiating new~~) ~~contracts~~ are ~~with~~reported ~~those~~as ~~customers~~discontinued oroperations ~~returning~~(see ~~them~~Results toof ~~tariffs~~Operations as- ~~the contracts~~QST ~~expire~~ Enterprises inDiscontinued ~~2001~~Operations).

The ultimate market price for electricity, the cost for a utility to produce or buy electricity, and the number of customers that may be gained or lost due to customer choice of supplier in Illinois cannot be predicted. As a result, management cannot predict the ultimate impact that the Customer Choice Law will have on CILCORP's financial position or results of operation, but the effect could be significant. However, CILCO is currently a lowForward-~~cost~~Looking ~~provider of electricity, and management will continue to position CILCO for~~ competition by controlling costs, maintaining good customer relations, and developing flexibility to meet individual customer requirements. As of June 30, 2001, all eligible electric customers continue to purchase their electricity supply from CILCO, other than those who self-generate. As of June 30, 2001, CILCO has contracts totaling approximately 2.5 million megawatt hours of new retail load outside of its service territory. CILCO will supply these new customers by primarily purchasing electricity from other suppliers. CILCO has made the necessary firm supply and transmission arrangements to meet customer requirements.Information

~~Market~~Forward-looking information is included in Management’s Discussion and ~~Risk~~ Analysis ~~Sensitive~~of ~~Instruments~~Financial Condition and Results of Operations (MD&A). Certain material contingencies are also described in Note 2 to the Consolidated Financial Statements.

~~CILCORP~~Some isimportant ~~exposed~~factors tocould ~~non-trading~~cause ~~risks~~actual ~~through~~results ~~its~~or ~~daily~~outcomes ~~business~~to differ ~~activities~~ materially from those expressed or implied in MD&A. ~~These~~The ~~non-trading~~business and profitability of CILCORP ~~activities~~ and ~~may~~its ~~include~~subsidiaries are influenced by economic and geographic factors, including ongoing changes in environmental laws and weather conditions; the extent and pace of development of competition for retail and wholesale energy customers; changes in technology; changes in company-wide operation and plant availability compared to historical performance and changes in historical operating cost structure, including changes in various costs and expenses; pricing and transportation of commodities; market orsupply ~~commodity~~and ~~price~~demand ~~risk~~for ~~related~~energy and energy derivative financial instruments; inflation; capital market conditions; and environmental protection and compliance costs. Prevailing governmental policies, statutory changes, and regulatory actions with respect to rates, tariffs, industry structure and recovery of various costs incurred by CILCO's in the course of its ~~retail~~ business ~~tariff~~and ~~activity~~increasing wholesale and ~~CILCORP's~~retail ~~non-regulated~~competition ~~commodity~~in ~~marketing~~the electric and ~~activities~~ gas business affect its earnings. In addition, actual results or outcomes could differ materially from those expressed or implied

The majority of CILCORP's energy sales during the first six months of 2001 were to CILCO retail customers in Illinois under tariffs regulated by the ICC. Although the Illinois retail electric market is becoming deregulated (see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Competition), prudently incurred costs of fuel used to generate electricity and purchased power costs may be recovered from retail customers that purchase energy through regulated tariffs under the Fuel Adjustment Clause (FAC). Thus, there has been very limited commodity price risk associated with CILCO's traditional regulated sales. However, as more customers in Illinois purchase energy on a competitive basis pursuant to the current Illinois deregulation timetable, CILCO's exposure to commodity price risk will increase. Also, CILCO's exposure to commodity price risk will increase if the FAC is eliminated.20

~~The market risk inherent~~ in ~~the~~MD&A ~~activities~~due ofto ~~CILCORP is~~ the ~~potential loss~~announced ~~arising~~agreement ~~from~~by ~~adverse~~CILCORP’s ~~changes in natural gas and electric commodity prices~~sole ~~relative~~ shareholder, ~~to the physical and financial positions that the Company maintains.~~ The ~~prices~~AES ofCorporation, ~~natural gas and electricity are subject~~ to ~~fluctuations~~sell ~~resulting~~its ~~from~~ownership ~~changes~~interest in ~~supply and demand. At June 30, 2001,~~ CILCORP ~~engaged in~~and ~~non-regulated~~ its ~~electric~~subsidiaries ~~retail~~to ~~and~~Ameren ~~natural gas sales in Illinois, including~~Corporation. ~~wholesale~~ All ~~power~~such ~~purchases~~factors ~~and~~are ~~sales~~difficult to ~~utilize~~predict, ~~its~~contain ~~electric~~uncertainties ~~generating~~that ~~capability. These non-regulated~~ ~~activities~~may ~~had~~materially ~~net~~affect ~~open~~actual ~~market~~results ~~price risk positions of approximately 1,397,000 MWh of electricity~~ and 5,~~720,000~~ ~~Mcf of natural gas. A market price sensitivity of 10% applied~~ to ~~these~~a ~~positions~~significant ~~is not~~degree, ~~material~~are to beyond the ~~Company. See Note 3~~control ~~for a discussion~~ of CILCORP's ~~use~~and ofits ~~financial derivatives for hedging purposes~~subsidiaries. ~~Due to the high~~ ~~correlation between the changes in the value of the financial instrument~~ ~~positions held by~~ CILCORP and ~~the~~its ~~change~~subsidiaries inundertake ~~price~~no ofobligation ~~the~~to ~~underlying~~publicly ~~commodity,~~update ~~the~~ or ~~net~~revise ~~effect~~any onforward-looking ~~CILCORP's~~statements, ~~net~~whether ~~income~~as ~~resulting~~a ~~from~~result ~~the~~of ~~change~~changes in ~~value of~~ ~~these~~ actual ~~financial~~results, ~~instruments~~assumptions isor ~~not~~other ~~expected to be material~~factors.

~~Results~~Capital ofResources ~~Operations~~& Liquidity

~~CILCO~~The ~~Electric~~Company ~~Operations~~believes that internal and external sources of capital which are or are expected to be available will be adequate to fund its capital expenditures, pay its financial obligations, meet working capital needs and retire or refinance debt as it matures.

~~The following table summarizes the components of CILCO electric operating income for the three months and six months ended June 30, 2001 and 2000.~~CILCORP

						Three Months Ended June 30,								Six Months Ended June 30,
						2001				2000				2001			2000
						(In thousands)
						(Unaudited)
Components of Electric Operating Income
Revenue:
	Electric retail						$	87,361			$	88,557		$	172,896		$	170,584
	Sales for resale						4,938				6,363			8,403			10,662
		Total revenue					92,299				94,920			181,299			181,246
Cost of sales:
	Cost of fuel						24,704				23,148			53,964			52,147
	Purchased power						9,547				15,000			19,659			17,899
	Revenue taxes						4,337				4,377			9,547			9,162
			Total cost of sales				38,588				42,525			83,170			79,208
Gross margin							53,711				52,395			98,129			102,038
Operating expenses
	Other operations and maintenance						24,906				20,349			46,328			38,844
	Depreciation and amortization						11,768				12,372			23,524			24,573
	Other taxes						2,343				1,958			4,838			4,579
				Total operating expenses			39,017				34,679			74,690			67,996
Total							14,694				17,716			23,439			34,042
Fixed charges and other
	Interest on long-term debt						3,091				3,091			6,181			6,326
	Cost of borrowed funds capitalized						(26		)		(99		)	(44		)	(202		)
	Other interest						1,350				727			2,483			1,427
					Total		4,415				3,719			8,620			7,551
Income before income taxes							10,279				13,997			14,819			26,491
	Income taxes						4,058				4,961			5,819			9,321
Electric income							$	6,221			$	9,036		$	9,000		$	17,170

CILCORP (the Holding Company) is currently authorized by its Board of Directors to borrow up to $60 million on a short-term basis. At June 30, 2002, the Holding Company had no short-term debt outstanding.

~~Electric gross~~In ~~margin~~October ~~increased~~1999, ~~3% for~~ the ~~quarter~~Holding ~~and~~Company ~~decreased~~issued 4%$225 ~~for~~million ~~the~~of ~~six months ended June 30, 2001, compared to the same periods in 2000~~8. ~~The~~7% ~~increase in gross margin for the quarter~~senior ~~was~~ notes (due to2009) aand ~~reduction~~$250 inmillion ~~non-energy~~of ~~purchased power costs which are not passed through the Fuel Adjustment Clause (FAC)~~9. ~~The~~375% ~~decrease~~senior innotes ~~electric gross margin for the six months ended was~~ (due ~~primarily~~ ~~to decreased wholesale power sales and increased purchased power costs~~2029). OnAlong ~~December~~with ~~20,~~equity ~~2000,~~funds asprovided ~~part~~by ~~of the 1999 FAC reconciliation hearings~~AES, the ~~Illinois Commerce Commission (ICC)~~ ~~ordered~~ proceeds ~~changes in CILCO’s calculation~~ of ~~allowable~~the ~~fuel~~notes ~~costs~~were ~~applicable~~used ~~to sales~~by ~~subject~~AES to ~~the~~acquire ~~FAC. These~~all ~~changes revised~~outstanding ~~the~~shares ~~allocation~~ of ~~generated and purchased power between regulated and~~ ~~non-regulated sales. As a result of~~ ~~this~~CILCORP ~~order,~~common ~~the~~stock ~~regulated sales margin decreased and the non-regulated sales margin increased~~ for ~~January~~approximately ~~through~~$886 ~~March 2001. On March 9~~million, ~~2001, the ICC issued an emergency rule in response~~ to ~~the~~ ~~margin~~pay ~~shifts. The~~transaction ~~emergency rule~~costs ~~restored the previous calculation method for off-system non-regulated sales in~~ anrelated ~~attempt~~ to ~~fairly allocate costs between regulated and non-regulated sales. On July 25, 2001,~~ the ~~ICC entered a final order~~acquisition, ~~amending~~and ~~the emergency rule, which changed the method for allocating fuel costs~~ to ~~non~~retire short-~~regulated~~term ~~sales~~debt.

Industrial sales increased 5% for the quarter and remained constant for the six months ended June 30, 2001, compared to the same periods in 2000. Residential sales decreased 4% for the quarter and increased 5% for the six months ended June 30, 2001, compared to the same periods in 2000. Commercial sales increased 1% for the quarter and 3% for the six months ended June 30, 2001, compared to the same periods in 2000. Retail kilowatt hour (kWh) sales increased 1% for the quarter and 2% for the six months ended June 30, 2001, compared to the same periods in 2000. Cooling degree days were 11% higher for May and June 2001, compared to the same period in 2000.CILCO

~~Sales~~Capital ~~for~~expenditures ~~resale~~totaled ~~decreased~~$63.1 ~~22%~~million for the ~~quarter and 21% for the~~ six months ~~ended~~ ended June 30, ~~2001,~~2002. Capital ~~compared~~expenditures are anticipated to ~~the~~be ~~same~~approximately ~~periods in 2000~~$71. ~~Sales~~9 million for ~~resale vary based on~~ the ~~energy requirements~~remainder of ~~native~~2002 ~~load customers, neighboring utilities~~ and ~~power~~are ~~marketers,~~ currently ~~CILCO’s~~estimated ~~available~~to ~~capacity~~be ~~for~~approximately ~~bulk~~$80.2 ~~power~~million ~~sales~~in ~~and the price of power available for sale~~2003. ~~CILCO’s~~The ~~activity~~increase in ~~the~~ ~~sales~~capital ~~for~~expenditures ~~resale~~in 2002 and ~~purchased~~2003 ~~power~~relates ~~markets~~primarily isto ~~expected~~the toinstallation ~~increase~~of asnitrogen aoxide (NOx) ~~result~~ reduction ofequipment ~~retail~~at ~~deregulation~~the inEdwards ~~the~~and ~~Illinois~~Duck ~~market~~Creek generating stations.

~~The~~CILCO ~~overall~~had ~~level~~short-term debt of ~~business~~$36 ~~activity~~million inat June 30, 2002, consisting entirely of commercial paper, outstanding at an average rate of 2.55%. CILCO’s ~~service~~expects ~~territory~~to ~~and~~issue commercial paper ~~weather~~ throughout ~~conditions~~2002, ~~are~~and ~~expected~~is currently authorized by its Board of Directors to ~~continue~~issue up to be$150 million ~~the~~of ~~primary~~short–term ~~factors~~debt. At ~~affecting~~June 30, 2002, committed bank lines of credit totaled $90 ~~electric~~ million, ~~sales~~all of which were unused except in support of commercial paper issuance. During 2002, CILCO expects to continue to support commercial paper issuance with its bank lines of credit. CILCO plans to finance its 2002 and 2003 capital expenditures with funds provided by operations, short-term debt and long-term debt. In June 2002, CILCO obtained a two-year $100 million senior secured term loan. The proceeds of the ~~near~~borrowings will be used to reduce short-term debt, refund medium-term notes maturing in 2003 and fund capital expenditures. The loan is secured by a first mortgage on substantially all of CILCO’s ~~electric~~property ~~sales~~and ~~will~~has ~~also~~a variable beinterest ~~affected~~rate. The inaverage interest ~~the~~rate ~~long~~on this term loan is currently 3.01%. Future funds provided by ~~deregulation~~ ~~and~~operations ~~increased~~may ~~competition~~be inaffected by the deregulation of the electric and natural gas utility ~~industry~~industries (see Competition).

The cost of fuel increased 7% for the quarter and 3% for the six months ended June 30, 2001, compared to the same periods in 2000. Purchased power decreased 36% and increased 10% for the quarter and six months ended June 30, 2001, respectively, compared to the same periods in 2000.21

Electric operation and maintenance expense increased 22% for the quarter and 19% for the six months ended June 30, 2001, compared to the same periods in 2000. The increase was mainly due to a lower return on pension assets in 2000, and to increased costs for power plant operations, uncollectible accounts and tree trimming.CIM

~~Income~~At ~~taxes expense decreased for the quarter and six months ended~~ June 30, ~~2001~~2002, ~~due~~CIM tohad ~~decreases~~outstanding indebt ~~pre-tax~~of ~~operating~~$11.3 ~~income~~million, borrowed from CILCORP.

~~Fixed charges and other expenses increased 19% for the quarter and 14% for the six months ended June 30, 2001, compared to the same periods in 2000, primarily due to higher interest expense.~~CVI

~~CILCO~~At ~~Gas~~June ~~Operations~~30, 2002, CVI had outstanding debt of $4.8 million, borrowed from CILCORP.

~~The following table summarizes the components of CILCO gas operating income for the three months and six months ended June 30, 2001 and 2000.~~Competition

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2001			2000			2001		2000
			(In thousands)
			(Unaudited)
Components of Gas Operating Income
Revenue:
	Sale of gas		$	40,491		$	31,667		$	197,964	$	100,440
	Transportation services		1,255			1,143			2,731		2,514
		Total revenue	41,746			32,810			200,695		102,954
Cost of sales:
	Cost of gas		25,816			17,474			152,496		58,406
	Revenue taxes		1,594			1,629			6,139		5,260
		Total cost of sales	27,410			19,103			158,635		63,666
Gross margin			14,336			13,707			42,060		39,288
Operating expenses
	Other operations and maintenance		8,533			7,044			16,146		14,412
	Depreciation and amortization		5,476			5,296			10,945		10,504
	Other taxes		517			625			1,135		1,455
		Total operating expenses	14,526			12,965			28,226		26,371
Total			(190		)	742			13,834		12,917
Fixed charges and other
	Interest on long-term debt		1,238			1,238			2,476		2,534
	Other interest expense		506			291			995		572
		Total	1,744			1,529			3,471		3,106
Income (loss) before income taxes			(1,934		)	(787		)	10,363		9,811
	Income taxes		(770		)	(303		)	4,125		3,919
Gas income (loss)			$	(1,164	)	$	(484	)	$	6,238	$	5,892

CILCO, as a regulated public utility, has an obligation to provide service to retail customers within its defined service territory; thus, CILCO has not generally been in competition with other public utilities for retail electric or gas customers in these areas. However, the passage of the Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law) began a transition process to a fully competitive market for electricity in Illinois. During the mandatory transition period, electric utilities are prohibited from increasing base rates, unless the electric utility demonstrates that its 2-year average earned rate of return is below the 2-year average of the monthly average yield of the U.S. Treasury long-term bond index. The mandatory transition period ends on January 1, 2005. Recently enacted legislation extends this rate freeze and transition period to January 1, 2007, provided that Ameren Corporation’s acquisition of CILCORP and its subsidiaries closes as anticipated. Electricity and natural gas also compete with other forms of energy available to customers. For example, within the City of Springfield, CILCO’s natural gas business competes with the City’s municipal electric system to provide customer energy needs.

~~Gas~~Primarily ~~gross margin~~as ~~increased~~a 5%result ~~for~~of the ~~quarter~~Customer ~~and~~Choice ~~7% for the six months ended June 30~~Law, ~~2001,~~ ~~compared to~~ the ~~same~~electric ~~periods~~ industry in ~~2000. Residential~~Illinois ~~sales~~will ~~volumes~~change ~~remained~~significantly ~~constant~~during ~~for~~ the ~~quarter~~coming ~~and increased~~years 8%at ~~for~~both the wholesale ~~six~~and ~~months~~retail ~~ended June 30, 2001~~levels. ~~Commercial~~As ~~sales volumes decreased 6% for the quarter and~~of ~~increased~~ December 31, ~~1% for the six months ended June 30~~2000, ~~2001. Heating~~all ~~degree~~non-residential ~~days~~customers ~~were~~had ~~22% lower for~~ the ~~quarter~~ability ~~and~~to ~~14% higher~~choose ~~for~~ their ~~the~~electric ~~six months ended June 30, 2001, compared to the same periods in 2000~~supplier. ~~Industrial sales volumes~~Residential ~~increased~~ electric ~~3.0%~~customers ~~for~~are ~~the~~able ~~quarter~~to ~~and~~choose ~~25%~~their ~~for~~electric ~~the~~supplier ~~six~~as ~~months~~of ~~ended June 30~~May 1, ~~2001,~~ ~~due to increased retail system use sales to transportation customers~~ 2002.

~~The~~If ~~overall~~a ~~level~~customer ofchooses ~~business~~to ~~activity~~leave inits ~~CILCO’s~~present ~~service~~electricity ~~territory~~supplier, that utility will collect a fee for delivering power and may assess an additional ~~weather~~ transition ~~conditions~~charge ~~are~~on ~~expected~~the tocustomer. This collection ~~continue~~methodology tomust be ~~the~~filed ~~primary~~with ~~factors~~and ~~affecting~~approved by the Illinois Commerce ~~gas~~ Commission ~~sales~~(ICC) inand is designed to help utilities recover a portion of the costs ~~near~~of ~~term~~past investments made under a regulated system. ~~CILCO~~The transition charge will usually reduce a customer’s ~~gas sales~~economic ~~may~~incentive ~~also~~to switch suppliers. Transition charges may be ~~affected~~collected bythrough ~~further~~2006 ~~deregulation~~(2008 atupon the ICC’s ~~retail~~finding ~~level~~that ina utility’s financial condition is impaired and the utility ~~natural~~ meets ~~gas~~other ~~industry~~requirements specified in the Customer Choice Law).

~~Revenue~~On ~~from~~March ~~gas~~9, ~~transportation~~2000, ~~services~~CILCO ~~increased~~filed ~~10%~~revised ~~and~~tariff 9%sheets ~~for~~with the ICC ~~quarter~~ eliminating ~~and~~the ~~six~~collection ~~months~~of ~~ended~~the ~~June~~customer ~~30,~~transition ~~2001,~~charge ~~respectively,~~effective ~~while gas~~March ~~transportation~~ 17, ~~sales~~2000. At ~~volumes~~a ~~decreased~~March ~~14%~~15, ~~for~~2000, hearing, the ~~quarter~~ICC ~~and~~approved ~~10%~~CILCO’s ~~for~~revised ~~the~~tariffs, ~~six months~~thereby ~~ended~~eliminating ~~June~~the ~~30,~~collection ~~2001,~~of any ~~compared~~customer totransition charge. CILCO cannot re-establish the ~~same~~collection ~~periods~~of ina ~~2000. Decreases~~transition incharge ~~lower~~until ~~margin~~it ~~industrial~~files, ~~gas~~and ~~transportation~~ the ~~sales~~ICC ~~were~~approves, ~~offset~~revised bytariff ~~increases~~sheets inthat ~~higher~~reinstate ~~margin~~a ~~commercial~~transition ~~gas transportation sales~~charge.

The ~~cost~~Customer ofChoice ~~gas~~Law ~~increased~~also ~~48%~~requires ~~for~~electric ~~the~~base ~~quarter~~rate ~~and 161% for the six~~reductions ~~months~~ that ~~ended~~vary ~~June~~by ~~30,~~utility. CILCO ~~2001,~~reduced ~~compared~~its residential tobase ~~the~~rates ~~same~~by ~~periods~~2% in ~~2000,~~August ~~due~~1998 ~~to increased gas sales~~ and ~~higher~~by ~~natural~~2% ~~gas~~in ~~prices~~October ~~during~~2000 ~~the quarter~~ and ~~six~~must ~~months~~ reduce ~~ended~~residential ~~June~~base ~~30,~~rates ~~2001. These higher~~by ~~natural~~an ~~gas~~additional ~~prices~~1% ~~were~~in ~~passed~~October ~~through~~2002. Also, toCILCO’s ~~customers~~return ~~via~~on ~~the~~common ~~PGA.~~equity will, in general,

Gas operation and maintenance expense increased 21% and 12%, respectively, for the quarter and six months ended June 30, 2001, compared to the same periods in 2000. The increases were primarily due to an increased uncollectible accounts expense, lower return on pension assets and increased gas distribution maintenance costs partially offset by decreased telecommunication expense and public liability claims.22

~~Fixed~~be ~~charges~~capped ~~and~~(the ~~other~~Equity ~~expenses~~Cap) ~~increased~~at 14an index (a 12-month average yield for 30 year U.S. Treasury bonds plus 8% for calendar years 1998 and 1999 and a 12 month-average yield for U.S. Treasury bonds plus 9% for ~~the~~calendar ~~quarter~~years 2000 through ~~and~~ 2004) ~~six~~plus ~~months~~1.5 ~~ended~~percentage ~~June~~points. The Equity ~~30,~~Cap was 16.1% in 2001, ~~compared~~16.6% toin ~~the~~2000, ~~same~~and ~~periods~~15.1% in ~~2000~~1999. If CILCO’s two-year average return on common equity exceeds the two–year average of the Equity Cap, fifty percent of ~~mainly~~ the ~~due~~earnings in excess of the average Equity Cap must be refunded to ~~higher~~customers in ~~interest~~the ~~expense~~following year.

On June 30, 1999, Senate Bill 24 (a clarification and technical correction of the Customer Choice Law) was signed into law. This law allows certain utilities, including CILCO, ~~Other~~to ~~Operations~~increase the Equity Cap by an additional 2% over the Equity Cap provided under the Customer Choice Law, for the period 2000 through 2004. The increase in the Equity Cap is allowed in exchange for these utilities offering choice of electricity suppliers to selected manufacturing customers on June 1, 2000, and to the remaining manufacturing customers on October 1, 2000, earlier than previously allowed under the Customer Choice Law. Utilities selecting this option must also waive the right to seek a two-year extension on the collection of transition charges. On April 13, 2000, CILCO filed revised tariff sheets with the ICC to make these selected customers eligible for choice on June 1, 2000, in order to increase the equity cap by 2%, as outlined in Senate Bill 24.

~~The~~With ~~following~~the ~~table~~enactment ~~summarizes~~of ~~CILCO’s~~the ~~other~~Customer ~~income~~Choice Law, electric generation in Illinois became deregulated and ~~deductions~~competitive. As a result, the accounting principles applicable to rate-regulated enterprises (Statement of Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation” (SFAS 71)) no longer apply to the ~~three~~electric ~~months~~generation ~~and~~portion ~~six~~of ~~months~~CILCO’s ~~ended~~business. There ~~June~~were ~~30,~~no ~~2001~~impairments to CILCO assets as a result of transitioning from SFAS 71. Its ability to keep total production costs competitive in a deregulated market will determine whether and ~~2000~~to what extent the value of these assets may be impaired in the future.

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2001			2000			2001			2000
			(In thousands)
			(Unaudited)
Components of CILCO Other
Revenue			$	26,210		$	10,443		$	39,004		$	18,784
Expense			(22,419		)	(11,681		)	(31,903		)	(19,489		)
Gross margin (deficit)			3,791			(1,238		)	7,101			(705		)
Other income and deductions:
Interest income			120			26			280			69
Operating expenses			(92		)	(339		)	(386		)	(660		)
Other taxes			—			(1		)	—			(2		)
Preferred stock dividends			(539		)	(1,058		)	(1,079		)	(1,898		)
Other			(316		)	(246		)	(618		)	(521		)
Total other income and deductions			(827		)	(1,618		)	(1,803		)	(3,012		)
Income (loss) before income taxes			2,964			(2,856		)	5,298			(3,717		)
	Income taxes (benefit)		986			(1,011		)	1,710			(1,365		)
		Other income (loss)	$	1,978		$	(1,845	)	$	3,588		$	(2,352	)

With electric choice beginning on October 1, 1999, for its industrial customers and some of its commercial customers, and with all other non-residential customers being able to choose their electric supplier on December 31, 2000, CILCO has entered into multi–year contracts with targeted customers representing approximately 45% of total 2001 electric kWh sales to non–residential customers. These contracts, most of which expire in 2004, were designed to capture a significant portion of the margin that the customers paid to CILCO in the most recent twelve months. In 2002, CILCO will be negotiating new contracts with customers who are currently being served under bundled tariff rates. For those contracts expiring in 2002, CILCO will be negotiating contract extensions with selected customers.

~~Gross~~The ~~margin~~ultimate ~~increased~~market price for electricity, the ~~quarter~~cost ~~and~~for ~~six~~a ~~months~~utility ~~ended~~to produce ~~June~~or 30buy electricity, ~~2001,~~ ~~compared~~and to the ~~same~~number ~~periods~~of incustomers ~~2000,~~that ~~primarily~~may be gained or lost due to ~~increased~~customer ~~non-regulated electricity~~choice ~~sales~~of supplier in Illinois ~~outside~~cannot ofbe ~~CILCO~~predicted. As a result, management cannot predict the ultimate impact that the Customer Choice Law will have on CILCORP’s ~~service~~financial position ~~territory~~or ~~and~~results ~~ICC mandated~~of ~~changes~~operation, inbut the ~~manner~~effect incould ~~which~~be ~~generated~~significant. However, CILCO is currently a low-cost provider of electricity, and ~~purchased~~management ~~power~~will ~~costs~~continue ~~are~~to position CILCO for ~~allocated~~ competition ~~between~~by ~~regulated~~controlling costs, maintaining good customer relations, and developing ~~non-regulated~~flexibility ~~sales~~to ~~(see~~meet ~~Item~~individual 2customer requirements. ~~Management’s~~As ~~Discussion~~of ~~and~~June ~~Analysis~~30, of2002, all electric customers ~~Financial~~ eligible ~~Condition~~for ~~and~~choice ~~Results~~continue ofto ~~Operations~~purchase –their electricity supply from CILCO, other ~~Electric~~than those who self-generate. As ~~Operations)~~ of June 30, 2002, CILCO has contracts totaling approximately 2. ~~These~~6 ~~sales~~million megawatt hours of retail load outside of its service territory for 2002. CILCO will supply these new customers by primarily purchasing electricity ~~were~~from toother ~~customers~~suppliers. CILCO ~~eligible~~has tomade ~~choose~~the ~~their~~necessary ~~energy~~firm ~~supplier~~supply ~~under~~and ~~the~~ transmission ~~Customer~~arrangements ~~Choice~~to ~~Law~~meet customer requirements.

Preferred stock dividends decreased for the quarter and six months ended June 30, 2001, compared to the same periods in 2000, due to the redemption of $25 million of auction rate preferred stock in July 2000.23

Market ~~Other~~ Risk ~~Businesses~~Sensitive ~~Operations~~Instruments

TheCILCORP followingand tableits summarizessubsidiaries Other(the BusinessesCompany) revenueare andexposed expenses forto thenon-trading threerisks monthsthrough andits sixdaily monthsbusiness endedactivities. JuneThese 30,non-trading 2001activities andmay 2000. Otherinclude Businessesthe resultsmarket includeor income earnedcommodity andprice expensesrisk incurredrelated atto theCILCO’s Holdingretail Company,tariff CIM,activity CVI, and CILCORP Infraservicesthe IncCompany’s non-regulated commodity marketing activities.

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2001			2000			2001			2000
		(In thousands)
		(Unaudited)
Components of Other Businesses
Net Loss
Revenue:
Leveraged lease revenue		$	1,343		$	1,435		$	2,739		$	4,750
Interest income		65			39			155			93
Gas marketing revenue		7,458			3,084			21,439			5,393
Other revenue		659			876			1,152			1,467
	Total revenue	9,525			5,434			25,485			11,703
Expenses:
	Gas purchased for resale	7,595			3,025			21,603			5,156
	Fuel for generation and purchased power	(1,334		)	—			(2,668		)	—
	Operating expenses	414			1,163			861			1,826
	Depreciation and amortization	4,576			3,613			8,441			7,225
	Interest expense	11,660			11,896			23,531			23,727
	Other taxes	20			8			46			120
	Total expenses	22,931			19,705			51,814			38,054
Loss before income taxes		(13,406		)	(14,271		)	(26,329		)	(26,351		)
	Income tax benefit	(4,061		)	(4,635		)	(8,418		)	(8,421		)
Other Businesses net loss		$	(9,345	)	$	(9,636	)	$	(17,911	)	$	(17,930	)

The majority of the Company’s electricity sales during the second quarter of 2002 were to CILCO retail customers in Illinois under tariffs regulated by the Illinois Commerce Commission (ICC). (All prudently incurred gas costs are recovered through the Company’s Purchased Gas Adjustment (PGA) for sales to customers under tariffs regulated by the ICC.) Prior to October 29, 2001, prudently incurred costs of fuel used to generate electricity and purchased power costs were recovered from retail customers that purchase energy through regulated tariffs under the Fuel Adjustment Clause (FAC). Thus, through October 28, 2001, there had been very limited commodity price risk associated with CILCO’s traditional regulated sales. CILCO filed to eliminate the FAC on September 10, 2001. The ICC approved the elimination of the FAC on October 24, 2001, for bills issued on or after October 29, 2001. While the Company is exposed to increased commodity price risk due to the elimination of the FAC, sufficient supply has been placed under contract to limit the Company’s exposure to market risk at any given time. When this supply is added to CILCO generation capacity, a reserve margin of over 15% is forecasted based on the forecasted peak load of 1,228 MW. Since CILCO supplies over 90% of its native load with its generation capacity, generation can be adjusted on a real-time basis to match actual load at any given time. CILCO is subject to the risk that generation becomes unavailable due to forced outages. The Company’s historical unplanned outage rate is 5.1%. In the event that CILCO generation and purchased supply is insufficient to meet load requirements, CILCO would have to purchase electric supply from the market at prevailing market rates.

LeveragedThe leasemarket revenuesrisk decreasedinherent 42%in forthe non-regulated activities of CILCORP and its subsidiaries is the sixpotential monthsloss endedarising from adverse changes in natural gas and electric commodity prices relative to the physical and financial positions that the Company maintains. The prices of natural gas and electricity are subject to fluctuations resulting from changes in supply and demand. The Company is engaged in non-regulated electric retail and natural gas sales in Illinois, including wholesale power purchases and sales to utilize its electric generating capability. At June 30, 20012002, primarilythese duenon-regulated activities had net open market price risk positions of approximately 93,000 MWh of electricity and 225,000 Mcf of natural gas. A market price sensitivity of 10% applied to positions open in the terminationnext twelve months is not material to the Company. See Note 3 for a discussion of the Company’s draglineuse leaseof financial derivatives for hedging purposes. Due to the high correlation between the changes in the firstvalue quarterof the financial instrument positions held by the Company and the change in price of 2001the underlying commodity, the net effect on the Company’s net income resulting from the change in value of these financial instruments is not expected to be material.

Gas marketing revenues and gas purchased for resale at CVI subsidiary, CILCORP Energy Services Inc., increased significantly due to increased gas marketing sales and higher natural gas prices.24

~~Interest~~Results ~~expense remained relatively constant for the six months ended June 30, 2001. Depreciation and amortization increased following the finalization~~ of ~~purchase price allocations in the fourth quarter of 2000.~~Operations

~~Fuel~~CILCO ~~for generation~~Electric ~~and purchased power was impacted in 2001 by $2.7 million in amortization related to the purchase accounting adjustment for the out-of-market Freeman coal contract.~~Operations

The ~~income~~following ~~tax~~table summarizes ~~benefit~~the ~~remained~~components ~~relatively~~of ~~constant~~CILCO inelectric operating income for the three months and six months ended June 30, ~~2001,~~2002 ~~compared~~and ~~to the corresponding period in 2000~~2001.

QST Enterprises Discontinued Operations

	Three Months Ended June 30,						Six Months Ended June 30,
Components of Electric Operating Income	2002			2001			2002			2001
	(In thousands)
	(Unaudited)
Revenue:
Electric retail	$	92,196		$	87,361		$	174,306		$	172,896
Sales for resale	2,460			4,938			4,463			8,403
Total revenue	94,656			92,299			178,769			181,299
Cost of sales:
Cost of fuel	24,295			24,704			46,325			53,964
Purchased power	12,517			9,547			24,047			19,659
Revenue taxes	4,521			4,337			9,423			9,547
Total cost of sales	41,333			38,588			79,795			83,170
Gross margin	53,323			53,711			98,974			98,129
Operating expenses
Other operations and maintenance	26,202			24,906			48,779			46,328
Depreciation and amortization	12,074			11,768			24,141			23,524
Other taxes	2,328			2,343			4,917			4,838
Total operating expenses	40,604			39,017			77,837			74,690
Fixed charges and other
Interest on long-term debt	3,194			3,091			6,364			6,181
Cost of borrowed funds capitalized	(409		)	(26		)	(647		)	(44		)
Other interest	713			1,350			1,475			2,483
Total	3,498			4,415			7,192			8,620

Income before income taxes	9,221			10,279			13,945			14,819
Income taxes	3,204			4,058			4,675			5,819
Electric income	$	6,017		$	6,221		$	9,270		$	9,000

~~QST~~Electric ~~Enterprises~~gross margin decreased 1% for the quarter and ~~QST~~increased ~~Energy~~1% ~~ceased~~for ~~operations~~the ~~during~~six months ended June 30, 2002, compared to the ~~fourth~~same periods in 2001. ~~quarter~~ The ofdecrease ~~1998,~~in ~~except~~gross margin for ~~fulfillment~~the ofquarter ~~contractual~~was ~~commitments~~primarily ~~for~~due ~~1999~~to decreased wholesale power sales and increased purchased power, partially offset ~~beyond~~ by increased retail sales. ~~Accordingly,~~The increase in electric gross margin for the ~~results~~six ofmonths ~~QST~~ended was due primarily to a first ~~Enterprises~~ quarter ~~are~~2002 ~~reported~~payment asdiscount ~~discontinued~~received ~~operations~~by CILCO in conjunction with the termination of an out-of-market long-term coal contract. AnThe ~~initial~~discount ~~loss~~reduced ~~provision~~cost ~~was~~of ~~recorded~~fuel by $0.8 million for the ~~discontinued energy~~first ~~operations~~quarter inof ~~1998~~2002. ~~Subsequent~~ ~~purchase~~ On ~~accounting~~December ~~adjustments~~20, ~~included~~2000, ~~additional~~as ~~discontinued~~part ~~operations~~of the 1999 FAC reconciliation hearings, ~~loss~~ the ~~accruals~~Illinois ~~for~~Commerce ~~QST~~Commission ~~Enterprises.~~(ICC) ordered changes in CILCO’s calculation of allowable fuel costs applicable to sales

~~QST Enterprises’ financial results were applied against the discontinued operations provision, resulting in no net income or loss for the six months ended June 30, 2001, and 2000.~~25

Insubject ~~February~~to ~~1999,~~the ~~QST~~FAC. These ~~Energy~~changes ~~notified~~revised ~~two~~the ofallocation ~~its California commercial~~of ~~customers~~ generated ~~that~~and ~~they~~purchased ~~were~~power inbetween ~~default~~regulated ofand ~~their~~non-regulated ~~contracts~~sales. As ~~with QST Energy as~~ a result of ~~not~~this ~~paying~~order, ~~QST~~the ~~Energy~~regulated sales ~~for~~margin ~~energy~~decreased ~~delivered. QST~~and ~~Energy~~the ~~filed~~non-regulated ~~two~~sales ~~suits~~margin inincreased ~~the~~for ~~U.S. District Court, Central~~January ~~District~~ through ofMarch ~~Illinois, seeking payment~~2001. In On March ~~1999~~9, ~~the customers filed a suit in California Superior Court~~2001, ~~Alameda~~ the ~~County,~~ICC ~~California,~~issued ~~alleging~~an ~~that~~emergency ~~QST~~rule ~~Energy was~~ in ~~breach~~response ofto the ~~contract. This~~ ~~suit~~margin ~~was subsequently removed to U~~shifts.~~S. District Court, Northern District of California.~~ The ~~two~~emergency ~~suits~~rule ~~filed~~restored ~~by QST Energy in~~ the ~~U.S.~~ ~~District Court, Central District of Illinois, were consolidated with the~~previous ~~suit~~ calculation inmethod ~~the~~for ~~U.S.~~off-system ~~District~~non-regulated ~~Court, Northern District of California~~sales. ~~In December 2000, the two customers filed counterclaims against QST Energy.~~ On July 1925, 2001, ~~QST Energy and~~ the ~~two~~ICC ~~customers~~entered ~~signed~~ a ~~settlement agreement~~final ~~and~~ order, ~~mutual~~amending ~~release which resolved all of~~ the ~~pending~~emergency ~~lawsuits. A~~rule ~~cash~~by ~~settlement~~changing ~~of $6 million was paid to QST Energy and applied against~~ the ~~accounts~~method ~~receivable~~for ~~balance~~allocating ~~at QST Energy,~~fuel ~~which was $13 million at June 30, 2001.~~ ~~CILCORP~~costs ~~had reserved $4.5 million as a preacquisition contingency related~~ to ~~this litigation. Consequently, the net write~~non-~~off~~regulated ~~during~~sales ~~the~~within ~~third~~CILCO’s ~~quarter~~service ~~will be approximately $2~~territory.~~5 million.~~

~~PART~~Industrial IIsales remained constant for the quarter and decreased 3% for the six months ended June 30, 2002, compared to the same periods in 2001. Residential sales increased 13% for the quarter and 3% for the six months ended June 30, 2002, compared to the same periods in 2001. ~~OTHER~~Commercial ~~INFORMATION~~sales increased 3% for the quarter and decreased 1% for the six months ended June 30, 2002, compared to the same periods in 2001. Retail kilowatt hour (kWh) sales increased 5% for the quarter and decreased 1% for the six months ended June 30, 2002, compared to the same periods in 2001. Cooling degree days were 22% higher for the quarter and six months ended June 30, 2002, compared to the same periods in 2001.

~~Item~~Sales for resale 1 decreased 50% for the quarter and 47% for the six months ended June 30, 2002, compared to the same periods in 2001. ~~Legal~~ Sales ~~Proceedings~~for resale vary based on the energy requirements of native load customers, neighboring utilities and power marketers, CILCO’s available capacity for bulk power sales and the price of power available for sale.

~~Reference~~The isoverall ~~made~~level ~~to “Fuel Supply – Coal” and “Electric Fuel and Purchased Gas Adjustment Clauses”~~ of ~~Item 1.~~ ~~Business, “Environmental~~ ~~Matters”~~business ofactivity ~~Item~~in ~~7. Management~~CILCO’s ~~Discussion~~service territory and ~~Analysis~~weather ofconditions ~~Financial Condition~~are ~~and~~ expected ~~Results~~to ofcontinue ~~Operations and~~ to ~~“Note~~be 7the –primary ~~Commitments~~factors ~~and~~affecting ~~Contingencies”~~electric ~~of Item~~sales ~~8. Financial Statements and Supplementary Data~~ in the near ~~Company~~term. CILCO’s ~~2000~~electric ~~Annual~~sales ~~Report on Form 10-K and to~~will ~~“Note 2~~ also ~~– Contingencies”~~be ~~and~~affected ~~“QST~~in ~~Enterprises~~the ~~Discontinued Operations”,~~long ~~herein,~~term ~~for~~by ~~certain~~deregulation ~~pending~~and ~~legal~~increased ~~proceedings~~competition ~~and/or proceedings~~in ~~known~~ the toelectric beutility ~~contemplated by governmental authorities~~industry.

The ~~Company~~cost ~~and~~of ~~its~~fuel decreased ~~subsidiaries~~2% ~~are~~for ~~subject~~the toquarter ~~certain claims~~ and ~~lawsuits~~ in14% ~~connection~~for ~~with work performed in~~ the ~~ordinary~~six ~~course~~months ofended ~~their businesses. Except~~June as30, ~~otherwise~~2002, ~~referred~~ compared to ~~above, in~~ the ~~opinion~~same ofperiods ~~management,~~in ~~all such claims currently~~2001. ~~pending~~ Purchased ~~either~~power ~~will~~increased ~~not~~31% ~~result~~and in22% afor ~~material adverse effect on~~ the ~~financial position~~quarter and ~~results~~six ofmonths ended ~~operations~~June of30, ~~the~~2002, ~~Company~~respectively, orcompared ~~are~~to ~~adequately~~the ~~covered~~same ~~by: (i)~~periods ~~insurance;~~in ~~(ii) contractual or statutory indemnification; and/or (iii) reserves for potential losses~~2001.

~~Item~~Electric operation and maintenance expense increased 5% for the quarter and six months ended June 30, 2002, compared to the same periods in 2001. The increase was mainly due to increased costs for pension, other post-employment benefits and tree trimming partially offset by lower uncollectible accounts expense. ~~Other~~Also contributing ~~Information~~to the unfavorable variance for the six months ended June 30, 2002, were expenses incurred as the result of an ice storm in the first quarter of 2002.

~~None~~Fixed charges and other expenses decreased 21% for the quarter and 17% for the six months ended June 30, 2002, compared to the same periods in 2001, primarily due to decreased short-term borrowings and increased cost of borrowed funds capitalized.

~~Item~~Income ~~6. Exhibits~~tax expense decreased 21% for the quarter and ~~Reports~~20% onfor ~~Form~~the 8six months ended June 30, 2002, compared to the same periods in 2001, due to decreases in pre-Ktax operating income.

~~(a) Exhibits~~26

~~None~~CILCO Gas Operations

~~(b) Reports~~The onfollowing ~~Form~~table summarizes ~~8-K~~the components of CILCO gas operating income for the three months and six months ended June 30, 2002 and 2001.

None

	Three Months Ended June 30,						Six Months Ended June 30,
Components of Gas Operating Income	2002			2001			2002		2001
	(In thousands)
	(Unaudited)
Revenue:
Sale of gas	$	36,751		$	40,491		$	115,043	$	197,964
Transportation services	1,430			1,255			3,156		2,731
Total revenue	38,181			41,746			118,199		200,695
Cost of sales:
Cost of gas	22,364			25,816			71,972		152,496
Revenue taxes	1,812			1,594			5,432		6,139
Total cost of sales	24,176			27,410			77,404		158,635
Gross margin	14,005			14,336			40,795		42,060
Operating expenses
Other operations and maintenance	9,215			8,533			18,084		16,146
Depreciation and amortization	5,607			5,476			11,204		10,945
Other taxes	507			517			1,136		1,135
Total operating expenses	15,329			14,526			30,424		28,226
Fixed charges and other
Interest on long-term debt	1,193			1,238			2,390		2,476
Other interest expense	266			506			554		995
Total	1,459			1,744			2,944		3,471
Income (loss) before income taxes	(2,783		)	(1,934		)	7,427		10,363
Income taxes	(1,061		)	(770		)	2,980		4,125
Gas income (loss)	$	(1,722	)	$	(1,164	)	$	4,447	$	6,238

~~SIGNATURES~~Gas gross margin decreased 2% for the quarter and 3% for the six months ended June 30, 2002, compared to the same periods in 2001. Residential sales volumes increased 17% for the quarter and decreased 1% for the six months ended June 30, 2002. Commercial sales volumes remained relatively constant for the quarter and decreased 9% for the six months ended June 30, 2002. Heating degree days were 6% lower for the six months ended June 30, 2002, compared to the same period in 2001. Industrial sales volumes increased 9% for the quarter and decreased 14% for the six months ended June 30, 2002.

~~Pursuant~~The tooverall ~~the~~level ~~requirements~~ of business ~~the~~activity ~~Securities~~in ~~Act~~CILCO’s ofservice ~~1934,~~territory ~~the registrant~~and ~~has~~weather ~~duly~~conditions ~~caused~~are expected ~~this~~to ~~report~~continue to be ~~signed~~the onprimary ~~its~~factors ~~behalf~~affecting bygas sales in the near ~~undersigned~~ term. CILCO’s ~~thereunto~~gas ~~duly~~sales ~~authorized~~may also be affected by further deregulation at the retail level in the natural gas industry.

	CILCORP Inc.
	(Registrant)
Date August 8, 2001
	/s/ R. J. Sprowls
	Vice President
Date August 8, 2001
	/s/ T. S. Romanowski
	Chief Financial Officer
	And Treasurer
	CENTRAL ILLINOIS LIGHT COMPANY
	(Registrant)
Date August 8, 2001
	/s/ R. J. Sprowls
	President
Date August 8, 2001
	/s/ T. S. Romanowski
	Chief Financial Officer
	And Treasurer

Revenue from gas transportation services increased 14% and 16% for the quarter and six months ended June 30, 2002, respectively, while gas transportation sales volumes increased 34% for the quarter and 22% for the six months ended June 30, 2002, compared to the same periods in 2001.

The cost of gas decreased 13% for the quarter and 53% for the six months ended June 30, 2002, compared to the same periods in 2001, due to lower natural gas prices during the quarter and six months ended June 30, 2002. These costs were passed through to customers via the Purchased Gas Adjustment (PGA).

Gas operation and maintenance expense increased 8% and 12%, respectively, for the quarter and six months ended June 30, 2002, compared to the same periods in 2001. The increases were primarily due to increases in expenses for pension and other post-employment benefits, partially offset by decreased uncollectible accounts expense. The increase for the six months ended was also due to increases in public liability claims, partially offset by a decrease in gas distribution costs.

Fixed charges and other expenses decreased 16% for the quarter and 15% for the six months ended June 30, 2002, compared to the same periods in 2001, mainly due to decreased short-term borrowings.

Income tax expense decreased 28% for the six months ended June 30, 2002, compared to the same period in 2001, due to a decrease in pre-tax operating income.

CILCO Other Operations

The following table summarizes CILCO’s other income and deductions for the three months and six months ended June 30, 2002 and 2001.

Components of CILCO Other	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
	(In thousands)
	(Unaudited)
Revenue	$	28,437		$	26,210		$	50,187		$	39,004
Expense	(20,969		)	(22,066		)	(41,012		)	(31,223		)
Gross margin	7,468			4,144			9,175			7,781

Other income and deductions:
Interest income	36			120			46			280
Operating expenses	(757		)	(445		)	(2,037		)	(1,066		)
Other taxes	(51		)	—			(51		)	—
Preferred stock dividends	(539		)	(539		)	(1,079		)	(1,079		)
Other	(325		)	(316		)	(667		)	(618		)
Total other income and (deductions)	(1,636		)	(1,180		)	(3,788		)	(2,483		)

Income before income taxes	5,832			2,964			5,387			5,298
Income taxes	2,112			986			1,745			1,710
Other income	$	3,720		$	1,978		$	3,642		$	3,588

Gross margin increased 80% for the quarter and 18% for the six months ended June 30, 2002, compared to the same periods in 2001, primarily due to increased margin per MWh sold and to increased non-regulated electricity sales in Illinois outside of CILCO’s service territory. The higher margin per MWh sold is not expected to continue beyond the third quarter 2002 operating results. These sales of electricity were to customers eligible to choose their energy supplier under the Customer Choice Law.

Operating expenses increased for the quarter and six months ended June 30, 2002, compared to the same periods in 2001, primarily due to increased administrative and bad debt expenses for non-regulated sales and increased charitable donations.

Other Businesses Operations

The following table summarizes Other Businesses revenue and expenses for the three months and six months ended June 30, 2002 and 2001. Other Businesses results include income earned and expenses incurred at the Holding Company, CIM, CVI, and CILCORP Infraservices Inc.

Components of Other Businesses Net Loss	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
	(In thousands)
	(Unaudited)
Revenue:
Leveraged lease revenue	$	1,290		$	1,343		$	2,616		$	2,739
Interest income	16			65			306			155
Gas marketing revenue	10,004			7,458			26,317			21,439
Other revenue	426			659			788			1,152
Total revenue	11,736			9,525			30,027			25,485
Expenses:
Gas purchased for resale	9,895			7,595			26,178			21,603
Fuel for generation and purchased power	—			(1,334		)	—			(2,668		)
Operating expenses	355			414			660			861
Depreciation and amortization	355			4,576			702			8,441
Interest expense	11,222			11,660			22,071			23,531
Other taxes	22			20			42			46
Total expenses	21,849			22,931			49,653			51,814
Loss before income taxes	(10,113		)	(13,406		)	(19,626		)	(26,329		)
Income tax benefit	(4,218		)	(4,061		)	(8,402		)	(8,418		)
Other Businesses net loss	$	(5,895	)	$	(9,345	)	$	(11,224	)	$	(17,911	)

Gas marketing revenues and gas purchased for resale at CVI subsidiary CILCORP Energy Services Inc. increased significantly due to

increased gas marketing sales.

Fuel for generation and purchased power was impacted in 2001 by $2.7 million of amortization related to the purchase accounting for an out-of-market coal contract. This contract was settled during the fourth quarter of 2001 and the preacquistion contingency related to this contract was removed.

Depreciation and amortization decreased due to the Company’s January 1, 2002, adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 142 requires that goodwill and intangible assets that have indefinite useful lives be tested at least annually for impairment rather than be amortized. Accordingly, the Company has ceased goodwill amortization which was approximately $7.7 million in the first half of 2001. See related discussion in Note 5 to the Consolidated Financial Statements.

Interest expense decreased for the six months ended June 30, 2002, due to the retirement of CILCORP’s medium-term notes in 2001 and lower short-term debt in 2002. This decrease was partially offset by interest on deferred compensation arrangements for two former officers.

The income tax benefit did not change significantly when comparing the 2002 results to the 2001 results for each period, even though the pretax loss was less in the 2002 periods. This is due to the elimination of goodwill amortization following the adoption of SFAS 142. Goodwill amortization is not deductible for tax purposes.

QST Enterprises Discontinued Operations

QST Enterprises and QST Energy ceased operations during the fourth quarter of 1998, except for fulfillment of contractual commitments for 1999 and beyond. Accordingly, the results of QST Enterprises are reported as discontinued operations. An initial loss provision was recorded for the discontinued energy operations in 1998. Subsequent purchase accounting adjustments included additional discontinued operations loss accruals for QST Enterprises.

Loss from operations of discontinued businesses, net of tax:

	Three Months Ended June 30,					Six Months Ended June 30,
	2002			2001		2002			2001
	(In thousands)
	(Unaudited)
QST Enterprises, net of tax of $(3) and $(8)	$	(3	)	$	—	$	(12	)	$	—
	$	(3	)	$	—	$	(12	)	$	—

QST Enterprises’ financial results for the quarter and six months ended June 30, 2002, were in excess of the discontinued operations provision and are shown as losses for those periods. The results for the periods ended June 30, 2001, were applied against the discontinued operations provision, resulting in no net income or loss.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to “Environmental Matters” of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and to “Note 7 - Commitments and Contingencies” of Item 8. Financial Statements and Supplementary Data in the Company’s 2001 Annual Report on Form 10-K and to “Note 2 - Contingencies”, herein, for certain pending legal proceedings and/or proceedings known to be contemplated by governmental authorities.

The Company and its subsidiaries are subject to certain claims and lawsuits in connection with work performed in the ordinary course of their businesses. Except as otherwise referred to above, in the opinion of management, all such claims currently pending either will not result in a material adverse effect on the financial position and results of operations of the Company or are adequately covered by: (i) insurance; (ii) contractual or statutory indemnification; and/or (iii) reserves for potential losses.

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

None

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CILCORP Inc.
		(Registrant)

Date August 9, 2002
		/s/ L. M. Lee
		President

Date August 9, 2002
		/s/ T. S. Romanowski
		Chief Financial Officer And Treasurer


	CENTRAL ILLINOIS LIGHT COMPANY
		(Registrant)

Date August 9, 2002
		/s/ L. M. Lee
		Chief Executive Officer

Date August 9, 2002
		/s/ T. S. Romanowski
		Chief Financial Officer And Treasurer

STATEMENT OF PRESIDENT UNDER 18 U.S.C. § 1350

In connection with the filing of the Quarterly Report of CILCORP Inc. on Form 10-Q for the period ending June 30, 2002 (the Report), I, Leonard M. Lee, the president of CILCORP Inc., certify pursuant to section 1350 of chapter 63 of title 18 of the United States Code that:

(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CILCORP Inc.

	/s/ Leonard M. Lee
	President

Date: August 9, 2002

STATEMENT OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. § 1350

In connection with the filing of the Quarterly Report of CILCORP Inc. on Form 10-Q for the period ending June 30, 2002 (the Report), I, Thomas S. Romanowski, the chief financial officer of CILCORP Inc., certify pursuant to section 1350 of chapter 63 of title 18 of the United States Code that:

(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CILCORP Inc.

	/s/ Thomas S. Romanowski
	Chief Financial Officer

Date: August 9, 2002

STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. § 1350

In connection with the filing of the Quarterly Report of Central Illinois Light Company on Form 10-Q for the period ending June 30, 2002 (the Report), I, Leonard M. Lee, the chief executive officer of Central Illinois Light Company, certify pursuant to section 1350 of chapter 63 of title 18 of the United States Code that:

(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Central Illinois Light Company.

	/s/ Leonard M. Lee
	Chief Executive Officer

Date: August 9, 2002

STATEMENT OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. § 1350

In connection with the filing of the Quarterly Report of Central Illinois Light Company on Form 10-Q for the period ending June 30, 2002 (the Report), I, Thomas S. Romanowski, the chief financial officer of Central Illinois Light Company, certify pursuant to section 1350 of chapter 63 of title 18 of the United States Code that:

(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Central Illinois Light Company.

	/s/ Thomas S. Romanowski
	Chief Financial Officer

Date: August 9, 2002

CENTRAL ILLINOIS LIGHT COMPANY

SeeConsolidated NotesStatements toof Consolidated FinancialCash Statements.Flows

Total

94,656

38,181

28,473

11,736

173,046

Total

92,299

41,746

26,330

9,525

169,900

Gas marketing revenues and gas purchased for resale at CVI subsidiary, CILCORP Energy Services Inc., increased significantly due to increased gas marketing sales and higher natural gas prices.24

Other Businesses Operations

PART II. OTHER INFORMATION

Filing Compare · CILCORP INC