FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut Street
Kansas City, Missouri 64106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 816-556-2200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Cumulative Preferred Stock New York Stock Exchange
par value $100 per share -
3.80%, 4.50%, 4.35%
Common Stock without par value New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. Yes X No
On March 23, 1995, the Company had 61,902,078 outstanding shares of common stock
without par value, and the aggregate market value (based upon the closing price
of these shares on the New York Stock Exchange) of voting securities held by
nonaffiliates of the Company was approximately $1,369,583,476.
Documents Incorporated by Reference
Portions of the Company's 1995 Notice of Annual Meeting of Stockholders and
Proxy Statement are incorporated by reference in Part III of this report.
TABLE OF CONTENTS
Page
Number
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company . . . . . . . . . . . . . . . . . . . 1
Regulation . . . . . . . . . . . . . . . . . . . . 1
Rates . . . . . . . . . . . . . . . . . . . 1
Environmental Matters. . . . . . . . . . . . 2
Air. . . . . . . . . . . . . . . . . . . . . 2
Water. . . . . . . . . . . . . . . . . . . . 2
Waste Disposal . . . . . . . . . . . . . . . 2
Fuel Supply. . . . . . . . . . . . . . . . . . . . 3
Coal . . . . . . . . . . . . . . . . . . . . 3
Nuclear. . . . . . . . . . . . . . . . . . . 3
High-Level Waste . . . . . . . . . . . 4
Low-Level Waste . . . . . . . . . . . . 4
Employees . . . . . . . . . . . . . . . . . . . . 4
Subsidiaries . . . . . . . . . . . . . . . . . . . 5
Officers of the Registrant . . . . . . . . . . . . 5
Company Officers . . . . . . . . . . . . . . 5
KLT Inc. Officers. . . . . . . . . . . . . . 6
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 6
Generation Resources . . . . . . . . . . . . . . . 6
Transmission and Distribution Resources . . . . . 7
General . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders. . . 8
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . 8
Market Information . . . . . . . . . . . . . . . . 8
Holders. . . . . . . . . . . . . . . . . . . . . . 8
Dividends. . . . . . . . . . . . . . . . . . . . . 8
Item 6. Selected Financial Data . . . . . . . . . . . . . . . .10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . .10
Item 8. Financial Statements . . . . . . . . . . . . . . . . . .18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . .38
Item 10. Directors and Executive Officers of the Registrant . . .38
Item 11. Executive Compensation . . . . . . . . . . . . . . . . .38
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . .38
Item 13. Certain Relationships and Related Transactions . . . . .38
Item 14. Exhibits and Reports on Form 8-K . . . . . . . . . . . .39
PART I
ITEM 1. BUSINESS
The Company
Kansas City Power & Light Company (Company) was incorporated in
Missouri in 1922 and is headquartered in downtown Kansas City, Missouri.
The Company is a medium-sized public utility engaged in the generation,
transmission, distribution and sale of electricity to over 424,000
customers in a 4,700 square mile area located in all or portions of 23
counties in western Missouri and eastern Kansas. About two-thirds of the
total retail kilowatt-hour sales and revenue are from Missouri customers
and the remainder from Kansas customers. Customers include 372,000
residences, 50,000 commercial firms, 2,000 industries, 12 municipalities
and 32 other electric utilities. Retail revenues in Missouri and Kansas
accounted for approximately 90% of the Company's total revenues in 1994.
Wholesale firm power, bulk power sales and miscellaneous electric revenues
accounted for the remainder of revenues. The Kansas City metropolitan
area, from which about 95% of the Company's retail revenues are derived,
is an agribusiness center and a major regional commercial center for
wholesale, retail and service companies.
The Company as a regulated utility does not have direct competition
for retail electric service in its service territory; however, there is
competition in the generation of electricity and between electric and gas
as an energy source.
KLT Inc., a wholly-owned subsidiary of the Company, was formed in
1992 as a holding company for various non-regulated business
opportunities. See "Subsidiaries" on page 5 of this report. The Company
also owns 47% of Wolf Creek Nuclear Operating Corporation, the operating
company for the Wolf Creek Generating Station (Wolf Creek).
Regulation
The Company is subject to the jurisdiction of the Public Service
Commission of the State of Missouri (MPSC), the State Corporation
Commission of the State of Kansas (KCC), the Federal Energy Regulatory
Commission (FERC), the Nuclear Regulatory Commission (NRC) and certain
other governmental regulatory bodies as to various phases of its
operations, including rates, service, safety and nuclear plant operations,
environmental matters and issuances of securities.
Rates
The Company's retail electric rates are regulated by the MPSC and KCC
for sales within the respective states of Missouri and Kansas. FERC
approves the Company's rates for wholesale bulk electricity sales. Firm
electric sales are made by contractual arrangements between the entity
being served and the Company.
The Company has not increased any of its retail or wholesale rates
since 1988. Pursuant to a stipulation and agreement with the MPSC, the
Company reduced Missouri retail rates by about 2.7 percent effective
January 1, 1994 and agreed to a moratorium through 1995 on the filing of
general retail rate increases or decreases in Missouri.
Environmental Matters
The Company, like other electric utilities, is subject to regulation
by various federal, state and local authorities with respect to air and
water emissions, waste disposal and other environmental matters.
Environmental regulations and standards are subject to continual review
and the Company cannot presently estimate any additional cost of meeting
such new regulations or standards which might be established in the
future, nor can it estimate the possible effect which any new regulations
or standards could have upon its operations. However, the Company
currently estimates that expenditures necessary to comply with
environmental regulations during 1995 will not be material with the
possible exceptions set forth below.
Air
The Clean Air Act Amendments of 1990 (Act) contain acid rain, air
toxic and permitting provisions that affect the Company. The acid rain
provisions established a two-phase utility pollution control program for
reducing national SO2 emissions by 10 million tons and Nox emissions by
2 million tons from 1980 levels. Compliance required the Company to
install continuous emission monitoring equipment (CEM) at all of its coal-
fired electric generating facilities. The Company has completed the
installation task and is currently involved with certifying this
equipment. As of December 31, 1994, the Company had spent $3.6 million of
a budgeted $5.245 million on this project. The Clean Air Act also calls
for a study by the Environmental Protection Agency (EPA) of certain toxic
emissions into the air. Based on the outcome of these studies, regulation
of certain air toxic emissions, including mercury, could be required in
the future. This study is scheduled to be completed in November of 1995.
A final provision of the Act establishes a state operating permit program
and annual state emission fees. Compliance costs and emission fees for
meeting the requirements of this program are estimated at $500,000
annually.
Water
The Company commissioned an environmental assessment of its Northeast
Station and of its Spill Prevention Control and Countermeasure plan as
required by the Clean Water Act. The assessment revealed contamination of
the site by petroleum products, heavy metals, volatile and semi-volatile
organic compounds, asbestos, pesticides and other regulated substances.
Based upon studies and discussions with Burns & McDonnell, the cost of the
cleanup could range between $1.5 million and $6 million.
Also, groundwater analysis has indicated that certain volatile
organic compounds are moving through the Northeast site, just above
bedrock, from unidentified sources off-site. The Missouri Department of
Natural Resources (MDNR) was notified of the possible release of petroleum
products and the presence of volatile organic compounds moving under the
site. Monitoring and removal of free petroleum products continues at the
site. MDNR has concluded that the volatile organic compounds originated
from a source off-site. MDNR stated it will continue to investigate the
source of the compounds. Because the Company believes it will not have
liability in this matter, it has not performed a study regarding the
possible cost of remediation of the flow of organic compounds.
Waste Disposal
The Comprehensive Environmental Response, Compensation and Liability
Act (Superfund) established joint and several liability for persons and
entities that generate, transport or deposit hazardous waste at
contaminated sites, as well as the current owners of such sites and
predecessors in title since the time such sites were contaminated.
Interstate Power Company of Dubuque, Iowa (Interstate) filed a
lawsuit in 1989 against the Company in the Federal District Court for the
District of Iowa seeking from the Company contribution and indemnity under
the Superfund for cleanup costs of hazardous substances at the site of a
demolished gas manufacturing plant in Mason City, Iowa. The plant was
operated by the Company for very brief periods of time before the plant
was demolished in 1952. The site and all other properties the Company
owned in Iowa were sold to Interstate in 1957. On November 3, 1994, KCPL
filed a feasibility study of potential remediation techniques for the site
with the U. S. Environmental Protection Agency (EPA). EPA subsequently
proposed that the contaminated soil should be incinerated. The court has
set the issue of the allocation among the parties of cleanup costs for
trial in September 1995. Management believes that its share of the
estimated $8 million clean-up costs will be between $1 million to $3
million.
Fuel Supply
The Company's principal sources of fuel for electric generation are
coal and nuclear fuel. These fuels are expected to satisfy over 99% of
the 1995 fuel requirements with the remainder provided by other sources
including natural gas, oil and steam. The 1994 and estimated 1995 fuel
mix, based on total Btu generation, are as follows:
Estimated
1994 1995
Coal 75.4% 71.4%
Nuclear 24.2% 28.1%
Other 0.4% 0.5%
The fuel mix varies depending on the operation of Wolf Creek which
requires a refueling and maintenance outage about every 18 months. The
plant's next refueling and maintenance outage is scheduled for the spring
of 1996.
Coal
The Company's average cost per million Btu of coal burned, excluding
fuel handling costs, was $0.89 in 1994, $0.96 in 1993 and $1.02 in 1992.
The Company's cost of delivered coal is about two-thirds that of the
regional average.
During 1995, approximately 10.6 million tons of coal (7.1 million
tons, Company's share) are projected to be burned at the Company's
generating units, including jointly-owned units. The Company has entered
into coal-purchase contracts with various suppliers in Wyoming's Powder
River Basin, the nation's principal supplier of low-sulfur coal. These
contracts, with expiration dates ranging from 1996 through 2003, will
satisfy approximately 95% of the projected coal requirements for 1995, 70%
for 1996 and 1997, and 20% thereafter.
Nuclear
The Wolf Creek Nuclear Operating Corporation (WCNOC), which operates
Wolf Creek, has on hand or under contract 63% of the uranium required to
operate Wolf Creek through the year 2001, and the balance is expected to
be obtained through open market or contract purchases.
Contracts are in place for 100% of Wolf Creek's uranium fuel
enrichment services requirements for 1995-1997, 90% of such requirements
for 1998-1999, and 95% of such requirements for 2000-2001, 0% for 2002-
2004, and 100% for 2005-2014. The balance of the requirements is expected
to be obtained through a combination of open market and contract
purchases.
Contracts are in place for the conversion of sufficient uranium to
uranium hexaflouride to meet Wolf Creek's uranium fuel requirements
through 1996 as well as for the fabrication of uranium fuel assemblies to
meet Wolf Creek's requirements through 2012.
High-Level Waste
The Nuclear Waste Policy Act of 1982 established schedules,
guidelines and responsibilities for the United States Department of Energy
(DOE) to develop and construct repositories for the ultimate disposal of
spent nuclear fuel and nuclear high-level waste. A permanent disposal
site may not be available for the industry until 2010 or later, although
an interim facility may be available earlier. Once a permanent site is
available, the DOE will require spent nuclear fuel to be accepted on a
priority basis with the owners of the oldest spent fuel given the highest
priority. As a result, disposal services for Wolf Creek may not be
available prior to 2027. Wolf Creek contains a temporary on-site spent
nuclear fuel storage facility which, under current regulatory guidelines,
provides space for the storage of spent nuclear fuel from plant operation
until approximately 2006, while still maintaining full core off-load
nuclear fuel storage capability. The Company believes adequate additional
temporary storage space for Wolf Creek's nuclear waste can be obtained, as
necessary.
Low-Level Waste
The Low-Level Radioactive Waste Policy Amendments Act of 1985
mandated that the various states, individually or through interstate
compacts, develop alternative low-level radioactive waste disposal
facilities. The states of Kansas, Nebraska, Arkansas, Louisiana and
Oklahoma formed the Central Interstate Low-Level Radioactive Waste Compact
and selected a site in northern Nebraska to locate a disposal facility.
The present estimate of the cost for such a facility is about $147
million. WCNOC and the owners of the other five nuclear units in the
compact have provided most of the pre-construction financing for this
project. To date, the compact has spent in excess of $64 million, of
which $9.5 million was WCNOC's share.
There is uncertainty as to whether this project will be completed.
Significant opposition to the project has been raised by the residents in
the area of the proposed facility and attempts have been made through
litigation and proposed legislation to slow down or stop development of
the facility. WCNOC has expanded its on-site temporary storage capacity
in order to handle its low-level radioactive waste until such time as a
disposal facility becomes available.
Employees
At December 31, 1994, the Company had 2,355 employees (including
temporary employees), 1,570 of which were represented by three local
unions of the International Brotherhood of Electrical Workers (IBEW).
Included in the total number of employees are 304 located at LaCygne
Generating Station (LaCygne), 50% of whose services are attributable to
Kansas Gas and Electric Company for its 50% share of LaCygne, and 130
located at Iatan Generating Station (Iatan), 30% of whose services are
attributable to St. Joseph Light & Power Company and the Empire District
Electric Company for their 18% and 12% shares of Iatan, respectively. The
Company has labor agreements with Local 1613, representing clerical
employees (which expires March 29, 1996), with Local 1464, representing
outdoor workers (which expires January 8, 1997), and with Local 412,
representing power plant workers (which expires February 28, 1998). The
Company is also a 47% owner of WCNOC, which employs 1,184 persons to
operate Wolf Creek, 310 of which are represented by the IBEW.
Subsidiaries
KLT Inc. had four wholly-owned subsidiaries as of December 31, 1994,
which included KLT Investments Inc., a passive investor in affordable
housing tax credit investments; KLT Energy Services Inc., a partner in an
energy management services business; KLT Power Inc., a participant in
independent power and cogeneration projects; and KLT Gas Inc., formed in
1994 to participate in oil and gas reserves and exploration. Since
December 31, 1994, two additional subsidiaries have been incorporated.
They are KLT Investments II Inc., which was formed to make additional
passive investments in economic and community-development and energy-
related fields, and KLT Telecom Inc., which will take advantage of
investment opportunities in telecommunications and fiber optics. KCPL's
equity investment in KLT Inc. at December 31, 1994, was $37 million.
Officers of the Registrant
Company Officers
Year Named
Name Age Positions Currently Held Officer
Drue Jennings 48 Chairman of the Board, President 1980
and Chief Executive Officer
Marcus Jackson 43 Senior Vice President-Power Supply 1989
J. Turner White 46 Senior Vice President-Retail 1990
Services
Frank L. Branca 47 Vice President-Wholesale and 1989
Transmission Services
Steven W. Cattron 39 Vice President-Marketing and 1994
Regulatory Affairs
Charles R. Cole 48 Vice President-Customer Services 1990
John J. DeStefano 45 Vice President-Finance and 1989
Treasurer
Jeanie Sell Latz 43 Vice President-Law and Corporate 1991
Secretary
Douglas M. Morgan 52 Vice President-Technical Services 1995
Richard A. Spring 40 Vice President-Production 1994
Bailus M. Tate 48 Vice President-Human Resources 1994
Neil Roadman 49 Controller 1980
Mark C. Sholander 49 General Counsel and Assistant 1986
Secretary
KLT Inc. Officers
Year Named
Name Age Positions Currently Held Officer
Bernard J. Beaudoin 54 President 1992
Ronald G. Wasson 50 Executive Vice President 1995
Floyd R. Pendleton 51 Vice President-Business 1992
Development
Mark G. English 43 Vice President and General 1995
Counsel
Janee C. Rosenthal 33 Corporate Secretary and Treasurer 1992
All of the foregoing persons have been officers of the Company or
employees in a responsible position with the Company for the past five
years except for Mr. Spring. Mr. Spring was an employee of the Company
from 1978 to 1993, when he left the Company to join Northern Indiana
Public Service Company as Director of Electric Production. In July 1994,
he rejoined the Company as Vice President-Production.
The term of office of each officer commences with his or her
appointment by the Board of Directors and ends at such time as the Board
of Directors may determine.
ITEM 2. PROPERTIES
Generation Resources
The Company's generating facilities consist of the following:
Estimated
1995
Year Megawatt(mw)
Unit Completed Capacity Fuel
Existing Units
Base Load..Wolf Creek(a) 1985 548(b) Nuclear
Iatan 1980 469(b) Coal
LaCygne 2 1977 331(b) Coal
LaCygne 1 1973 341(b) Coal
Hawthorn 5 1969 457 Coal/Gas
Montrose 3 1964 161 Coal
Montrose 2 1960 152 Coal
Montrose 1 1958 150 Coal
Peak Load..Northeast 13 and 14(c) 1976 112 Oil
Northeast 17 and 18(c) 1977 108 Oil
Northeast 15 and 16(c) 1975 111 Oil
Northeast 11 and 12(c) 1972 99 Oil
Grand Avenue (2 units) 1929 & 1948 64 Gas
Total 3,103
(a) This unit is one of the Company's principal generating facilities
and has the lowest fuel cost of any of its generating facilities.
Any extended shutdown of the unit for any reason could have a
substantial adverse effect on the operations of the Company and
its financial condition.
(b) Company's share of jointly-owned unit.
(c) Combustion turbines.
The Company's maximum system net hourly peak load of 2,819 mw
occurred on August 17, 1993. The maximum winter peak load of 1,829 mw
occurred on December 21, 1989. The accredited generating capacity of the
Company's electric facilities in the summer (when peak loads are
experienced) of 1994 under MOKAN Power Pool standards was 3,098 mw.
The Company owns the Hawthorn Station (Jackson County, Missouri),
Montrose Station (Henry County, Missouri), Northeast Station (Jackson
County, Missouri) and two Grand Avenue Station turbine generators (Jackson
County, Missouri). The Company also owns 50% of the 682-mw LaCygne 1 Unit
and 662-mw LaCygne 2 Unit in Linn County, Kansas; 70% of the 670-mw Iatan
Station in Platte County, Missouri; and 47% of the 1,167 mw Wolf Creek in
Coffey County, Kansas.
The Company has entered into a contract with Siemens Power
Corporation for the purchase of a V.84.3A combustion turbine-generator, to
be installed by the year 1997, with an anticipated accredited capacity of
approximately 136 mw.
Transmission and Distribution Resources
The Company's electric transmission system is interconnected with
systems of other utilities to permit bulk power transactions with other
electricity suppliers in Kansas, Missouri, Iowa, Nebraska and Minnesota.
The Company is a member of the MOKAN Power Pool, which is a contractual
arrangement among eleven utilities in western Missouri and Kansas which
interchange electric energy, share reserve generating capacity, and
provide emergency and standby electricity services to each other.
The Company owns approximately 1,700 miles of transmission lines and
approximately 8,900 miles of overhead distribution lines, and
approximately 2,900 miles of underground distribution lines. The Company
has all franchises necessary to sell electricity within the territories
from which substantially all of its gross operating revenue is derived.
General
The Company's principal plants and properties, insofar as they
constitute real estate, are owned in fee; certain other facilities are
located on premises held under leases, permits or easements; and its
electric transmission and distribution systems are for the most part
located over or under highways, streets, other public places or property
owned by others for which permits, grants, easements or licenses (deemed
satisfactory but without examination of underlying land titles) have been
obtained.
Substantially all of the fixed property and franchises of the
Company, which consists principally of electric generating stations,
electric transmission and distribution lines and systems, and buildings
(subject to exceptions and reservations) are subject to a General Mortgage
Indenture and Deed of Trust dated as of December 1, 1986.
ITEM 3. LEGAL PROCEEDINGS
Inter-City Beverage Co., Inc. et. al vs. Kansas City Power & Light Company
On August 13, 1993, a lawsuit was filed by nine customers in the
Circuit Court of Jackson County, Missouri against the Company. The suit
alleged the misapplication of certain of the Company's electric rate
tariffs resulting in overcharges to industrial and commercial customers
which have been provided service under those tariffs and requested
certification as a class action. On December 3, 1993, the Court dismissed
the matter for lack of subject matter jurisdiction. Plaintiffs appealed
to the Missouri Court of Appeals, Western District. The Court of Appeals
upheld the dismissal. Plaintiffs then filed a motion to transfer the case
with the Missouri Supreme Court. The motion was denied on January 24,
1995.
See "Environmental Matters - Waste Disposal" on page 3 and "Notes to
Consolidated Financial Statements - Tax Matters" on page 32 of this
report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information:
(1) Principal Market:
Common Stock of the Company is listed on the New York Stock
Exchange and the Chicago Stock Exchange.
(2) Stock Price Information:
Common Stock Price Range
1994 1993
Quarter High Low High Low
First $23-1/4 $20-5/8 $25-1/8 $22
Second 23 18-5/8 25-1/4 23-1/2
Third 22-1/2 19-1/4 26-1/4 24-3/8
Fourth 23-7/8 21-1/8 25 21-3/4
Holders:
At December 31, 1994, the Company's Common Stock was held by 31,613
shareholders of record.
Dividends:
Common Stock dividends were declared as follows:
Quarter 1995 1994 1993
First $0.38 $0.37 $0.36
Second 0.37 0.36
Third 0.38 0.37
Fourth 0.38 0.37
The Company's Restated Articles of Consolidation contains certain
restrictions on the payment of dividends on the Company's Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31
1994 1993 1992 1991 1990
(thousands)
Operating revenues $ 868,272 $ 857,450 $ 802,668 $ 825,101 $ 815,570
Net income $ 104,775 $ 105,772 $ 86,334 $ 103,893 $ 102,732
Earnings per common
share $ 1.64 $ 1.66 $ 1.35 $ 1.58 $ 1.56
Total assets at
year-end $2,770,397 $2,755,068 $2,646,923 $2,615,039 $2,598,859
Total redeemable
preferred stock and
long-term debt
(including current
maturities) $ 833,485 $ 869,908 $ 816,625 $ 824,756 $ 852,645
Cash dividends per
common share $ 1.50 $ 1.46 $ 1.43 $ 1.37 $ 1.31
Ratio of earnings to
fixed charges 4.07 3.80 3.12 3.22 2.96
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REGULATION AND COMPETITION
The electric utility industry is currently undergoing fundamental changes
in response to increasing competition. To achieve its desired market position
in this changing environment, the Company continues to modify its business
processes to operate more efficiently and cost effectively, and is developing
energy related businesses through its subsidiary, KLT Inc. In order to take
advantage of opportunities presented through increased competition, the
Company may, from time to time, consider various business strategies including
partnerships, acquisitions, combinations, additions to or dispositions of
service territory, and restructuring of wholesale and retail businesses.
The National Energy Policy Act of 1992 (NEPA) gave the Federal Energy
Regulatory Commission (FERC) the authority to require electric utilities to
provide wholesale transmission line access (wholesale wheeling) to independent
power producers (IPPs) and other utilities. Although NEPA prohibits FERC from
ordering retail wheeling (allowing retail customers to select a different
power producer and use the transmission facilities of the host utility to
deliver the energy), it does not prevent the state commissions from doing so.
The state commissions however, may be preempted by other provisions of the
Federal Power Act or relevant provisions of state laws.
Although the Missouri Public Service Commission (MPSC) and the Kansas
Corporation Commission (KCC) have not changed regulatory policy relating to
mandated wholesale or retail competition, certain other state commissions are
actively planning the transition to a competitive environment. If retail
wheeling were allowed or mandated, the competition would present growth
opportunities for low-cost energy producers and risks for higher-cost
producers with large industrial customers able to select less expensive
providers. The loss of major customers could result in under-utilized assets
(stranded investment) placing a costly burden on the remaining customer base
or shareholders. The Company believes it is positioned well and has a diverse
customer mix with less than 16% of total sales derived from industrial
customers as compared to the utility average of approximately 35%. Its
industrial rates are competitively priced compared to the regional average and
its rate structure allows flexibility in setting rates. In addition, long-
term contracts are in place or under negotiation for a significant portion of
the Company's industrial sales.
Increased competition could also force utilities to change accounting
methods. Financial Accounting Standards Board (FASB) Statement No. 71-
Accounting for Certain Types of Regulation, applies to regulated entities
whose rates are designed to recover the costs of providing service. An
entity's operations could cease to meet the requirements of FASB 71 for
various reasons, including a change in regulation or a change in the
competitive environment for a company's regulated services. For those
operations no longer meeting the requirements of regulatory accounting,
regulatory assets would be written off and other assets adjusted and evaluated
for impairment. In a competitive environment, asset recoverability would be
determined using market-based rates which could be lower than traditional
cost-based rates. The Company has not had direct competition for retail
electric service in its service territory although there has been competition
in the bulk power market and between alternative fuels. See Note 1 to the
Consolidated Financial Statements for a discussion of the Company's regulatory
assets which will be maintained as long as the Company continues to meet the
requirements of FASB 71.
NON-REGULATED OPPORTUNITIES
KLT Inc. was formed in 1992 as a holding company to pursue non-regulated,
energy related business ventures to supplement the growth from electric
utility operations. KLT Inc. has invested in the following wholly-owned, non-
regulated subsidiaries: KLT Power Inc. (non-regulated power production), KLT
Energy Services Inc. (energy services including energy audits and efficient
equipment), KLT Gas Inc. (oil and gas reserves), and KLT Investments Inc.
(passive investment opportunities including affordable housing limited
partnerships). As of December 31, 1994, the consolidated assets of KLT Inc.
totaled approximately $90 million, including capital contributions from Kansas
City Power & Light Company of $37 million. Management anticipates total
subsidiary assets of up to $800 million within the next 10 years, consisting
of approximately $200 million in equity investment from Kansas City Power &
Light Company and the remainder through subsidiary borrowings.
KILOWATT-HOUR (KWH) SALES AND ELECTRIC OPERATING REVENUES
Sales and revenue data:
Increase (Decrease) from Prior Year
1994 1993
Kwh Revenues Kwh Revenues
(millions) (millions)
Retail sales:
Residential 2 % $ 1 13 % $ 30
Commercial 3 % 1 3 % 9
Industrial 2 % (5) 3 % 3
Other (4)% - 1 % -
Total retail 2 % (3) 6 % 42
Sales for resale:
Bulk power sales 27 % 15 27 % 13
Other (20)% (1) 5 % -
Total operating revenues $ 11 $ 55
Effective January 1, 1994, Missouri retail rates were reduced 2.66%, or
approximately $12.5 million annually, resulting from the end of the Wolf Creek
Generating Station (Wolf Creek) rate phase-in amortization. Other tariffs
have not changed materially since 1988. However, the amortization of the
Regulatory Asset-Deferred Wolf Creek Costs ends in 1996 and may result in
future rate adjustments. By agreement with the MPSC and public counsel, none
of the parties can unilaterally file for a general increase or decrease in
Missouri retail rates to be effective prior to January 1, 1996. Approximately
two-thirds of the Company's retail sales are to Missouri customers.
Despite the Missouri rate reduction, residential and commercial revenues
increased in 1994 reflecting load growth and more normal weather patterns
compared to 1993 and 1992. Based on cooling degree days above 65 degrees
Fahrenheit, summer temperatures remained below normal for the third
consecutive year, although 1994 temperatures increased slightly over the mild
temperatures of 1993 and significantly over the abnormally cool temperatures
of 1992.
While industrial kwh sales continued to increase, 1994 industrial
revenues decreased from 1993 reflecting the 2.66% Missouri rate reduction,
customized long-term sales contracts and additional load management
curtailment credits. The Company has entered into long-term sales contracts
with major industrial customers to respond to their needs in return for their
commitment to purchase energy from the Company. Long-term contracts are in
place or under negotiation for a significant portion of the Company's
industrial sales. Curtailment credits were granted to certain industrial
customers in exchange for reduced energy consumption during peak periods.
Both programs have enhanced the Company's competitive position and improved
overall power generating efficiencies and load factors, while boosting
consumption and providing short-term and long-term capacity savings.
Increases in bulk power sales during 1994 and 1993 reflect higher unit
availability and greater emphasis on new interchange markets.
Total revenue per kwh sold varies with changes in the mix of kwh sales
among customer classifications and the effect on certain classifications of
declining price per kwh as usage increases. An automatic fuel adjustment
provision applies to less than 1% of revenues.
Future kwh sales and revenues per kwh will be affected by national and
local economic conditions, weather conditions and customer conservation
efforts. Competitive forces, including alternative sources of energy such as
natural gas, cogeneration, IPPs and other electric utilities, may also affect
future sales and revenue. The level of bulk power sales in the future will
depend upon system requirements, generating unit availability, fuel costs and
the requirements of other electric systems.
FUEL AND PURCHASED POWER
Although combined fuel and purchased power costs have increased since
1992 to support additional sales, the price of delivered coal has decreased
more than 13% during that time. This decrease is due largely to reduced
freight rates and favorable spot market conditions during recent years. Spot
market purchases have allowed the Company to acquire coal at prices below
long-term contract rates. However, due to increasing demand for low-sulfur
coal, the Company is again securing a larger percentage of coal through
medium-term agreements. The cost of nuclear fuel has increased more than 10%
since 1992. Based on contract prices and projected future spot market prices,
the cost of nuclear fuel is expected to increase from its current level of 40%
to roughly 50% of the price of coal by 1996. Coal accounts for approximately
75% of generation and nuclear fuel about 25%.
Increases in fuel costs during 1994 and 1993 were also partially offset
by lower replacement power expenses associated with Wolf Creek outages
(including the ongoing accrual discussed in Note 1 to the Consolidated
Financial Statements-Wolf Creek Refueling Outage Costs). Replacement power
expenses for 1994 decreased $2 million from 1993 reflecting Wolf Creek's 47
day refueling and maintenance outage versus the 73 day refueling outage in
1993. The 1993 expenses decreased $6 million from 1992 when the unit
experienced unexpected outages.
The Company has entered into capacity purchase contracts to provide a
cost-effective alternative to constructing new capacity. These purchases,
included in purchased power, have increased from $7 million in 1992 to
$13 million in 1994.
OTHER OPERATION AND MAINTENANCE EXPENSES
Other operation expenses for 1994 increased over 1993 due primarily to
the costs associated with a voluntary early retirement program. The Company
expensed $22.5 million ($0.22 per share) during 1994 representing total
program costs. These costs were partially offset by the savings from reduced
payroll and benefits after the June 30, 1994 retirements. Savings are
expected to offset the program costs in less than two years.
Other operation expenses increased during 1993 reflecting increased
generating plant production expenses and higher levels of administrative and
general expenses. These increases are due mainly to increased wages and
employee benefits, and the accrual of postretirement benefits which began in
1993 (see Note 2 to the Consolidated Financial Statements).
The Company continues to place increased emphasis on new technologies,
improved methods and cost control. Processes are being changed to provide
increased efficiencies and improved operations. Through the use of cellular
technology, a majority of customer meters will be read automatically by the
end of 1996. These types of changes have allowed the Company to assimilate
work performed by those who elected to participate in the early retirement
program.
GENERAL TAXES
Components of general taxes (in thousands):
1994 1993 1992
Property taxes $ 46,895 $ 45,545 $ 44,300
Gross receipts taxes 40,397 40,659 39,232
Other general taxes 9,070 9,455 8,929
Total general taxes $ 96,362 $ 95,659 $ 92,461
Increases in property taxes since 1992 reflect increases in state and
local tax levies and assessments. Gross receipts tax varies directly with
Missouri billed revenues.
OTHER INCOME AND DEDUCTIONS
The 1994 income tax benefit includes amounts related to corporate-owned
life insurance contracts, and tax benefits resulting from affordable housing
credits and interest deductions. Miscellaneous for 1992 includes gains from
the sale of property and other contract settlements.
INTEREST CHARGES
Declines in long-term interest expense since 1992 reflect lower average
interest rates and the retirement, repayment or refinancing of debt. The
Company's average interest rate on long-term debt, including current
maturities, declined to 5.4% in 1994 compared to 6.0% in 1993 and 6.6% in
1992.
Variances in short-term interest expense reflect the changing levels of
short-term debt outstanding. The average daily outstanding balance of short-
term debt was $23, $16 and $60 million in 1994, 1993, and 1992, respectively.
EARNINGS PER SHARE (EPS)
EPS for 1994 decreased only $0.02 from 1993 despite the one-time
$22.5 million ($0.22 per share) impact of the voluntary early retirement
program (see Note 2 to the Consolidated Financial Statements).
Summer temperatures remained below normal in 1994 and 1993, despite an
increase in both years over the abnormally cool summer temperatures of 1992.
Based on a statistical relationship between kwh sales and the differences in
actual and normal temperatures for the year, the effects of abnormal weather
for the last three years were estimated as follows:
1994 1993 1992
Estimated decrease in EPS
due to abnormal weather $ (0.07) $ (0.10) $ (0.35)
Compared to the prior year, EPS for 1994 and 1993 also reflects
increasing bulk power sales, decreasing delivered coal costs, and lower
average interest rates resulting from the refinancing of a significant portion
of long-term debt. Both years reflect heavy emphasis on cost control,
minimizing the effects of inflation on operating expenses. In addition,
expenses associated with Wolf Creek outages decreased from 1992, positively
affecting 1993 EPS by $0.06.
WOLF CREEK
Wolf Creek is one of the Company's principal generating facilities
representing approximately 18% of accredited generating capacity. The plant's
operating performance has remained strong, contributing approximately 25% of
the Company's annual kwh generation while operating at an average capacity of
83% over the last three years. It has the lowest fuel cost of any of the
Company's generating units. During 1994, Wolf Creek completed its seventh
scheduled refueling and maintenance outage in 47 days, a plant record. The
plant's next refueling and maintenance outage is scheduled for the spring of
1996.
Wolf Creek's assets and operating expenses represent approximately 50%
and 20% of the Company's total assets and operating expenses, respectively.
Currently no major equipment replacements are anticipated, but an extended
shut-down of the unit could have a substantial adverse effect on the Company's
business, financial condition and results of operations. Higher replacement
power and other costs would be incurred as a result. Although not expected,
an unscheduled plant shut-down could be caused by actions of the Nuclear
Regulatory Commission reacting to safety concerns at the plant or other
similar nuclear facilities. If a long-term shut-down occurred, the state
regulatory commissions could consider reducing rates by excluding Wolf Creek
investment from rate base.
Ownership and operation of a nuclear generating unit exposes the Company
to potential retrospective assessments and property losses in excess of
insurance coverage. These risks are more fully discussed in Note 4 to the
Consolidated Financial Statements-Commitments and Contingencies-Nuclear
Liability and Insurance.
ENVIRONMENTAL MATTERS
The Company's policy is to act in an environmentally responsible manner
and utilize the latest technological processes available to avoid and treat
contamination. The Company continually conducts environmental audits designed
to assure compliance with governmental regulations and detect contamination.
However, these regulations are constantly evolving; governmental bodies may
impose additional or more rigid environmental regulations which could require
substantial changes to operations or facilities.
See Note 4 to the Consolidated Financial Statements-Commitments and
Contingencies-Environmental Matters for a discussion of costs of compliance
with environmental laws and regulations and a potential liability (which
management believes is not material to its financial condition or results of
operations) for cleanup costs under the Federal Superfund law.
Clean Air Act Amendments of 1990 contain two programs significantly
affecting the utility industry. The Company has spent $3.6 million for the
installation of continuous emission monitoring equipment to satisfy the
requirements under the acid rain provision. Future acid rain program
regulations may require further capital expenditures, which cannot be
estimated at this time. The other utility-related program calls for a study
of certain air toxic substances. Based on the outcome of this study,
regulation of air toxic substances, including mercury, could be required.
Management cannot predict the likelihood of any such regulations or compliance
costs.
PROJECTED CONSTRUCTION EXPENDITURES
Construction expenditures, excluding subsidiaries and allowance for funds
used during construction, were $125 million in 1994 and are projected for the
next five years as follows:
Construction Expenditures
1995 1996 1997 1998 1999 Total
(millions)
Generating facilities $ 47 $ 63 $ 52 $ 54 $ 134 $350
Nuclear fuel 21 5 23 20 9 78
Transmission facilities 9 10 6 15 19 59
Distribution and
general facilities 65 56 47 48 49 265
Total $ 142 $134 $ 128 $137 $ 211 $752
This five year resource plan includes $146 million of forecasted costs
for three new 136 megawatt gas-fired combustion turbines scheduled to be
completed from 1997 through 2000. The need for generating capacity additions
has been delayed through fixed-price purchased capacity contracts (see Note 4
to the Consolidated Financial Statements-Commitments and Contingencies-Long-
Term Coal Contracts). Management believes these contracts provide a more
cost-effective approach to meeting uncertain levels of sales demand growth
when compared to the long-term fixed costs associated with building new
capacity, despite risks associated with market price fluctuations. This
resource plan is subject to periodic review and modification. The next plan
will be submitted to the MPSC in July 1997.
CAPITAL REQUIREMENTS AND LIQUIDITY
Management believes it will be able to meet a significant portion of the
projected construction expenditures with internally-generated funds. It is
anticipated that funds for $208 million of maturing debt through 1999 will be
provided from operations, refinancings or short-term debt. As of December 31,
1994, the Company had $157 million of registered but unissued Medium-Term
Notes and $159 million of unused bank lines of credit. Uncertainties
affecting the Company's ability to meet these requirements with internally-
generated funds include such items as the effect of inflation on operating
expenses, the level of kwh sales, regulatory actions, compliance with future
environmental regulations, and the availability of generating units. The
Company might incur additional debt and/or issue additional equity to finance
growth or take advantage of new opportunities.
In January 1994, Moody's Investors Service upgraded the credit ratings of
the Company's bonds due to improved financial profile and low-cost operations.
The Company's long-term debt was upgraded as follows: secured pollution
control bonds to A1 from A2; general mortgage bonds-medium-term notes to A1
from A3; unsecured pollution control bonds to A2 from Baa1; and, preferred
stock to a2 from a3. In addition, in 1993 Standard & Poor's Corporation and
Duff & Phelps upgraded the Company's general mortgage bonds as follows:
Standard & Poor's from A- to A; and Duff & Phelps from A to A+. Improved
ratings will make it less costly to raise funds when needed and will
contribute to continued strength while meeting the challenge of increased
competition in the utility industry.
The capital structure at December 31, 1994 (including current maturities
of long-term debt) consisted of approximately 50% common stock equity, 5%
preferred stock and 45% long-term debt. Management's intent is to maintain a
capital structure with approximately equal percentages of common stock equity
and long-term debt.
The Company currently uses an accelerated depreciation method for tax
purposes. Application of this method on the Wolf Creek plant has reduced the
Company's tax payments during the last three years by approximately $30
million per year. Accelerated depreciation on Wolf Creek ended in 1994.
Management is implementing various tax planning strategies, including
investing in affordable housing partnerships and purchasing corporate-owned
life insurance contracts, to minimize future tax payments resulting from the
loss of this depreciation deduction.
See Note 4 to the Consolidated Financial Statements-Commitments and
Contingencies-Tax Matters for a discussion of the Company's federal income tax
returns for the years 1985 through 1992 which are presently under audit by the
Internal Revenue Service.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1994 1993 1992
(Thousands)
ELECTRIC OPERATING REVENUES $868,272 $857,450 $802,668
OPERATING EXPENSES
Operation
Fuel 135,106 130,117 130,032
Purchased power 33,929 31,403 21,868
Other 202,304 184,633 175,937
Maintenance 72,468 78,550 81,163
Depreciation 94,361 91,110 88,768
Taxes
Income (Note 3) 70,949 69,502 51,691
General 96,362 95,659 92,461
Amortization of:
MPSC rate phase-in plan (Note 1) 0 7,072 7,072
Deferred Wolf Creek costs (Note 1) 13,102 13,102 13,102
Total 718,581 701,148 662,094
OPERATING INCOME 149,691 156,302 140,574
OTHER INCOME AND DEDUCTIONS
Allowance for equity funds
used during construction 2,087 2,846 1,073
Miscellaneous (4,159) (2,486) 2,595
Income taxes (Note 3) 4,572 1,549 (505)
Total 2,500 1,909 3,163
INCOME BEFORE INTEREST CHARGES 152,191 158,211 143,737
INTEREST CHARGES
Long-term debt 43,962 50,118 54,266
Short-term notes 1,170 750 2,749
Miscellaneous 4,128 4,113 2,173
Allowance for borrowed funds
used during construction (1,844) (2,542) (1,785)
Total 47,416 52,439 57,403
YEARLY RESULTS
Net income 104,775 105,772 86,334
Preferred stock
dividend requirements 3,457 3,153 3,062
Earnings available for
common stock 101,318 102,619 83,272
Average number of common
shares outstanding 61,903,437 61,908,726 61,908,726
Earnings per common share $1.64 $1.66 $1.35
Cash dividends per
common share $1.50 $1.46 $1.43
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31 December 31
1994 1993
ASSETS (Thousands)
UTILITY PLANT, at original cost (Notes 1, 8 and 9)
Electric $3,330,478 $3,240,384
Less-Accumulated depreciation 1,092,436 1,019,714
Net utility plant in service 2,238,042 2,220,670
Construction work in progress 57,294 67,766
Nuclear fuel, net of amortization of
$66,773,000 and $ 76,722,000 40,806 29,862
Total 2,336,142 2,318,298
REGULATORY ASSET - DEFERRED WOLF CREEK COSTS (Note 1) 18,752 29,118
REGULATORY ASSET - RECOVERABLE TAXES (Note 1) 120,000 122,000
INVESTMENTS AND NONUTILITY PROPERTY 98,429 28,454
CURRENT ASSETS
Cash and cash equivalents 20,217 1,539
Special deposits 0 60,118
Receivables
Customer accounts receivable (Note 5) 24,513 29,320
Other receivables 22,604 19,340
Fuel inventories, at average cost 16,570 14,550
Materials and supplies, at average cost 44,953 44,157
Prepayments 5,138 4,686
Deferred income taxes (Note 3) 1,444 3,648
Total 135,439 177,358
DEFERRED CHARGES
Regulatory assets (Note 1)
Settlement of fuel contracts 16,625 20,634
KCC Wolf Creek carrying costs 6,839 9,575
Other 27,909 31,899
Other deferred charges 10,262 17,732
Total 61,635 79,840
Total $2,770,397 $2,755,068
KANSAS CITY POWER & LIGHT COMPANY
LIABILITIES
CAPITALIZATION (Notes 7 and 8) (See Statements)
Common stock-authorized 150,000,000 shares
without par value-61,908,726 shares issued -
stated value $449,697 $449,697
Retained earnings 426,738 418,201
Capital stock premium and expense (1,736) (1,747)
Common stock equity 874,699 866,151
Cumulative preferred stock 89,000 89,000
Cumulative redeemable preferred stock 1,596 1,756
Long-term debt 798,470 733,664
Total 1,763,765 1,690,571
CURRENT LIABILITIES
Notes payable to banks (Note 6) 1,000 4,000
Commercial paper (Note 6) 31,000 25,000
Current maturities of long-term debt 33,419 134,488
Accounts payable 73,486 59,421
Dividends payable 423 423
Accrued taxes 24,684 27,800
Accrued interest 12,209 15,575
Accrued payroll and vacations 19,594 20,127
Accrued refueling outage costs (Note 1) 2,120 7,262
Other 7,221 8,531
Total 205,156 302,627
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes (Note 3) 644,139 627,819
Deferred investment tax credits 82,840 87,185
Other 74,497 46,866
Total 801,476 761,870
COMMITMENTS AND CONTINGENCIES (Note 4)
Total $2,770,397 $2,755,068
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1994 1993 1992
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $104,775 $105,772 $86,334
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 94,361 91,110 88,768
Amortization of:
Nuclear fuel 10,136 8,705 9,583
Deferred Wolf Creek costs 13,102 13,102 13,102
MPSC rate phase-in plan 0 7,072 7,072
Other 9,608 8,234 5,921
Deferred income taxes (net) 20,524 25,502 23,979
Deferred investment tax credits (net) (4,345) (4,345) (4,521)
Allowance for equity funds used
during construction (2,087) (2,846) (1,073)
Cash flows affected by changes in:
Receivables 1,543 (10,245) 2,848
Fuel inventories (2,020) 6,075 (859)
Materials and supplies (796) 1,106 654
Accounts payable 14,065 (17,741) 4,838
Accrued taxes (3,116) 7,936 2,404
Accrued interest (3,366) 2,626 488
Wolf Creek refueling outage
accrual (5,142) (5,338) 12,600
Pension and postretirement benefit
obligations (Note 2) 32,203 1,905 (2,753)
Other operating activities (2,860) 4,514 4,352
Net cash provided by operating
activites 276,585 243,144 253,737
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (124,965) (129,199) (129,559)
Allowance for borrowed funds used
during construction (1,844) (2,542) (1,785)
Purchases of investments (67,560) (7,351) (2,396)
Other investing activities 5,624 7,657 (2,193)
Net cash used in investing
activities (188,745) (131,435) (135,933)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 133,793 324,846 134,750
Issuance of preferred stock 0 0 50,000
Retirement of long-term debt (170,170) (271,480) (143,230)
Retirement of preferred stock 0 0 (13,000)
Special deposit for the
retirement of debt 60,118 (60,118) 0
Premium on reacquired stock and
long-term debt 0 (4,077) (2,321)
Increase (decrease) in short-term
borrowings 3,000 (4,000) (53,000)
Dividends paid (96,238) (93,556) (91,277)
Other financing activities 335 (1,913) 274
Net cash used in financing
activities (69,162) (110,298) (117,804)
NET INCREASE IN CASH AND CASH
EQUIVALENTS 18,678 1,411 0
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,539 128 128
CASH AND CASH EQUIVALENTS
AT END OF YEAR $20,217 $1,539 $128
CASH PAID DURING THE YEAR FOR:
Interest, net of amount capitalized $48,246 $47,361 $55,223
Income taxes $53,720 $40,141 $32,995
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND LONG-TERM DEBT
December 31
1994 1993
CUMULATIVE PREFERRED STOCK (Note 7) (thousands)
$100 Par
3.80% - 100,000 shares issued $10,000 $10,000
4.50% - 100,000 shares issued 10,000 10,000
4.20% - 70,000 shares issued 7,000 7,000
4.35% - 120,000 shares issued 12,000 12,000
No Par
4.80%* - 500,000 shares issued 50,000 50,000
Total $89,000 $89,000
CUMULATIVE REDEEMABLE PREFERRED STOCK (Note 7)
$100 Par
4.00% - 15,957 and 17,557 shares issued $1,596 $1,756
LONG-TERM DEBT (EXCLUDING CURRENT MATURITIES) (Note 8)
First Mortgage Bonds
5.875% series due 2007 $0 $21,940
General Mortgage Bonds
Medium-Term Notes due 1996-2008, 6.82% and
6.78% weighted average rate at December 31 395,500 378,750
5.25%* Environmental Improvement Revenue
Refunding Bonds due 2012-23 158,768 122,846
Guaranty of Pollution Control Bonds
5.75% series due 2003 0 13,742
4.31%* due 2015-17 196,500 196,500
Subsidiary Obligations
Notes due 2000-04, 8.38% weighted average
rate at December 31 47,702 0
Unamortized Discount 0 (114)
Total $798,470 $733,664
* Variable rate securities, weighted average rate as of December 31, 1994
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31
1994 1993 1992
(thousands)
Beginning Balance $418,201 $405,985 $411,161
Net Income 104,775 105,772 86,334
522,976 511,757 497,495
Premium on Reacquired Preferred Stock 0 0 233
Dividends Declared:
Preferred Stock, at required rates 3,384 3,169 2,747
Common Stock - $1.50, $1.46 and $1.43
per share 92,854 90,387 88,530
Ending Balance (Note 7) $426,738 $418,201 $405,985
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
The consolidated financial statements include the accounts of Kansas City
Power & Light Company and KLT Inc., a wholly-owned, nonutility subsidiary.
KLT Inc. was formed in 1992 as a holding company for various non-regulated
business ventures.
Intercompany balances and transactions have been eliminated. Kansas City
Power & Light Company's equity investment in KLT Inc. was $37 and $5 million
at December 31, 1994 and 1993, respectively. KLT Inc.'s revenues and expenses
have been classified under Other Income and Deductions and Interest Charges in
the Consolidated Statements of Income.
Accounting records are maintained in accordance with the Uniform System
of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and
generally accepted accounting principles.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid investments with
maturities of three months or less.
Fair Value of Financial Instruments
The stated values of financial instruments at December 31, 1994 and 1993
approximate fair market values. If quoted market prices were not available,
the Company's incremental borrowing rate for similar types of debt was used to
determine fair value.
Investments in Affordable Housing Limited Partnerships
Through December 31, 1994, KLT Investments Inc., a subsidiary of KLT
Inc., had invested $54 million in affordable housing limited partnerships.
The investments are recorded at cost and tax credits are recognized in the
year utilized.
Utility Plant
Utility plant is stated at historical costs of construction. These costs
include taxes, an allowance for funds used during construction (AFDC) and
payroll-related costs including pensions and other fringe benefits. Additions
of, and replacements and improvements to units of property are capitalized.
Repairs of property and replacements of items not considered to be units of
property are expensed as incurred (except as discussed under Wolf Creek
Refueling Outage Costs). When property units are retired or otherwise
disposed, the original cost, including removal charges, net of salvage is
charged to accumulated depreciation.
AFDC represents the cost of borrowed funds and a return on equity funds
used to finance construction projects and is capitalized as a cost of
construction work in progress. The portion attributable to borrowed funds is
reflected as a reduction of interest charges while the portion applicable to
equity funds is shown as a non-cash item of other income. When a
construction project is placed in service, the related AFDC, as well as other
construction costs, is used to establish rates under regulatory rate
practices. The rates used to compute gross AFDC are compounded semi-annually
and averaged 7.8% for 1994, 8.3% for 1993 and 6.6% for 1992.
Depreciation is computed on a straight-line basis over the estimated
lives of depreciable property based on rates approved by state regulatory
authorities. Average annual composite rates approximated 2.9% during the last
three years.
Wolf Creek Refueling Outage Costs
Forecasted incremental costs to be incurred during scheduled Wolf Creek
Generating Station (Wolf Creek) refueling outages are accrued evenly (monthly)
over the unit's operating cycle, normally about 18 months. These incremental
costs include operating, maintenance and replacement power expenses.
Nuclear Plant Decommissioning Costs
Estimated decommissioning costs for Wolf Creek were revised in 1994 by
the Missouri Public Service Commission (MPSC) and the Kansas Corporation
Commission (KCC). The estimates for decontamination, dismantlement and site
restoration costs were based on the immediate dismantlement method.
Decommissioning of the plant is not expected to start before 2025. The
following table shows each commission's estimated costs and assumptions (in
1993 dollars):
KCC MPSC
Undiscounted decommissioning costs:
Total Station $1.3 billion $1.8 billion
47% share $595 million $859 million
Discounted decommissioning costs:
Total Station $370 million $370 million
47% share $174 million $174 million
Annual escalation factor 3.45% 4.50%
Annual return on trust assets 6.48% 7.66%
These estimated costs are higher than prior estimates primarily due to
significant increases in assumed disposal costs for low-level radioactive
waste. Previously, total discounted decommissioning costs were estimated by
the KCC in 1989 to be $206 million (in 1988 dollars) and, by the MPSC in 1992
to be $347 million (in 1990 dollars).
The Company contributes to a tax-qualified decommissioning trust fund
(approximately $3 million for each of the last three years) to be used to
decommission the unit. These costs are charged to other operation expenses
and recovered over the expected life of the plant. Recent tax law changes
regarding nuclear decommissioning trust funds allow for investments in higher
yielding securities. Increases in annual contributions are not anticipated
during the next two years.
As of December 31, 1994 and 1993, the trust fund balance, including
reinvested earnings, was $19 and $14 million, respectively. These amounts are
reflected in the Consolidated Balance Sheets under Investments and Nonutility
Property with the related liabilities for decommissioning included in Deferred
Credits and Other Liabilities-Other.
The Financial Accounting Standards Board (FASB) is currently reviewing
the accounting for nuclear plant decommissioning obligations including the
balance sheet presentation of estimated decommissioning costs and the
accounting treatment of trust fund earnings.
Nuclear Fuel
Nuclear fuel is amortized to fuel expense based on the quantity of heat
produced for the generation of electricity. Under the Nuclear Waste Policy
Act of 1982, the Department of Energy (DOE) is responsible for the permanent
disposal of spent nuclear fuel. Currently, the Company pays a quarterly fee
of one mill per kilowatt-hour of net nuclear generation to the DOE for future
disposal of spent nuclear fuel. These disposal costs are charged to fuel
expense and recovered through rates.
A permanent disposal site may not be available for the industry until
2010 or later, although an interim facility may be available earlier. Once a
permanent site is available, the DOE will require spent nuclear fuel to be
accepted on a priority basis with the owners of the oldest spent fuel given
the highest priority. As a result, disposal services for Wolf Creek may not
be available prior to 2027. Wolf Creek has an on-site, temporary storage
facility for spent nuclear fuel which, under current regulatory guidelines,
can provide storage space until approximately 2006. Management believes
additional temporary storage space can be constructed or obtained as
necessary.
Regulatory Assets
FASB Statement No. 71-Accounting for Certain Types of Regulation applies
to regulated entities whose rates are designed to recover the cost of
providing service. FASB 71 allows certain items that would normally be
reflected in net income to be deferred on the balance sheet. These items are
then amortized as the related amounts are reflected in rates. The Company
recognizes regulatory assets when authorized by a commission's rate order or
when it is probable, based on historical regulatory precedent, that future
rates will recover amortization of the costs. If subsequent recovery is no
longer probable, any unamortized balance, net of tax, would reduce net income.
Deferred Wolf Creek Costs
KCC and MPSC orders provided for continued construction accounting
for ratemaking purposes after Wolf Creek's September 3, 1985 commercial
in-service date through September 30, 1985 and May 5, 1986, respectively.
The commissions also authorized the deferral of certain other carrying
costs. These deferrals are being amortized and recovered in rates over
an approximate 10 year period.
Recoverable Taxes
See Income Taxes below for discussion.
Settlement of Fuel Contracts
The Company deferred the cost incurred to terminate certain coal
purchase contracts. These costs are being amortized over various periods
ending in 2002.
KCC Wolf Creek Carrying Costs
As ordered by the KCC, certain Wolf Creek carrying costs were
deferred through June 1991. The recovery and corresponding amortization
of this deferral over six years began in July 1991.
MPSC Rate Phase-In Plan
Under the MPSC's 1986 Wolf Creek rate phase-in plan, the Company
deferred a cash recovery of a portion of the cost of equity plus carrying
costs on the deferral. The amortization and recovery were completed in
December 1993 resulting in a 2.66% rate reduction effective January 1,
1994 (approximately $12.5 million annually) applied evenly to the
Company's Missouri retail customer classes. By agreement with the MPSC
and public counsel, none of the parties can unilaterally file for a
general increase or decrease in Missouri retail electric rates prior to
January 1, 1996. Approximately two-thirds of total retail sales are to
Missouri customers.
Other
Other regulatory assets include premium on redeemed debt, deferred
flood costs, the deferral of costs to decommission and decontaminate
federal uranium enrichment facilities and other costs. These deferrals
are amortized over various periods extending to 2023.
Revenue Recognition
The Company utilizes cycle billing and accrues an estimate for unbilled
revenue at the end of each reporting period.
Income Taxes
FASB Statement No. 109-Accounting for Income Taxes requires deferred tax
liabilities and assets be established for all temporary differences caused
when the tax basis of an asset or liability differs from that reported in the
financial statements. These deferred tax assets and liabilities are
determined using the tax rates scheduled by the tax law to be in effect when
the temporary differences reverse.
Regulatory Asset-Recoverable Taxes primarily reflects the future revenue
requirements necessary to recover the tax benefits of existing temporary
differences flowed through to ratepayers in the past. During 1993, the net
change in Regulatory Asset-Recoverable Taxes and Deferred income taxes
included a $40 million increase resulting from the changes in the federal and
Missouri state income tax laws effective January 1, 1993 and January 1, 1994,
respectively. Although the Company calculates its deferred tax assets and
liabilities pursuant to FASB 109, operating income tax expense is recorded in
accordance with ratemaking principles. However, if FASB 109 were reflected in
the Consolidated Statements of Income, net income would remain the same.
Investment tax credits are deferred when utilized and amortized to income
over the remaining service lives of the related properties.
Environmental Matters
Environmental costs are accrued when it is probable a liability has been
incurred and the amount of the liability can be reasonably estimated.
Management believes it has recorded all appropriate costs related to
environmental matters.
2. PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Early Retirement Program
In March 1994, the Company offered a voluntary early retirement program
to 411 eligible management and union employees. On June 30, 1994, 332
employees, or 81%, of eligible employees retired under the program. The
Company expensed estimated program costs of $14 million ($0.14 per share)
during the first quarter of 1994 and $10.2 million ($0.10 per share) during
the second quarter. Based on a final actuarial valuation, a $1.7 million
($0.02 per share) reduction in expense was recorded during the fourth quarter
resulting in total pension and postretirement program costs to the Company of
$16.5 and $6.0 million, respectively ($0.22 per share).
Pension Plans
The Company has defined benefit pension plans for all its regular
employees, including officers, providing benefits upon retirement. In
accordance with the Employee Retirement Income Security Act of 1974, the
Company has satisfied its minimum funding requirements. Benefits under these
plans reflect the employee's compensation, years of service and age at
retirement.
Funded status of the plans:
December 31
1994 1993
(thousands)
Accumulated Benefit Obligation:
Vested $ 219,111 $ 209,193
Non-vested 4,595 6,296
Total $ 223,706 $ 215,489
Determination of Plan Assets
less Obligations:
Fair value of plan assets (a) $ 301,245 $ 315,179
Projected benefit obligation (b) 269,124 279,525
Difference $ 32,121 $ 35,654
Reconciliation of Difference:
Contributions to trusts
Prepaid $ - $ 10,677
Accrued liability (18,401) (6,304)
Unrecognized transition obligation 14,684 16,756
Unrecognized net gain 39,570 18,197
Unrecognized prior service cost (3,732) (3,672)
Difference $ 32,121 $ 35,654
(a) Plan assets are invested in insurance contracts, corporate bonds, equity
securities, U.S. Government securities, notes, mortgages and short-term
investments.
(b) Based on discount rates of 8.5% in 1994 and 7% in 1993; and increases in
future salary levels of 4% to 5% in 1994 and 1993.
Components of provisions for pensions (excluding early retirement program
costs):
1994 1993 1992
(thousands)
Service cost $ 8,193 $ 8,671 $ 7,301
Interest cost on projected benefit
obligation 20,759 19,521 17,903
Actual return on plan assets (1,143) (49,875) (24,541)
Other (22,297) 27,715 3,653
Net periodic pension cost $ 5,512 $ 6,032 $ 4,316
Long-term rates of return on plan assets of 8% to 8.5% were used.
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, certain postretirement health
care and life insurance benefits are provided for substantially all retired
employees.
FASB Statement No. 106-Employers' Accounting for Postretirement Benefits
Other Than Pensions requires companies to accrue the cost of postretirement
health care and life insurance benefits during an employee's active years of
service. Until 1993, these costs were expensed as paid (pay-as-you-go). The
Company currently recovers these costs through rates on a pay-as-you-go basis.
Net periodic postretirement benefit cost (excluding early retirement
program costs):
1994 1993
(thousands)
Service cost $ 645 $ 616
Interest cost on accumulated
postretirement benefit obligation (APBO) 2,305 1,893
Amortization of unrecognized
transition obligation 1,175 1,175
Other 75 -
Net periodic postretirement cost 4,200 3,684
Less: Pay-as-you-go costs 1,097 1,109
Net increase in cost due to FASB 106 $ 3,103 $ 2,575
Actuarial assumptions include an increase in the annual health care cost
trend rate for 1995 of 12%, decreasing gradually over a six year period to its
ultimate level of 6%. The health care plan requires retirees to participate
in the cost when premiums exceed a certain amount. Because of this provision,
an increase in the assumed health care cost trend rate by 1% per year would
only increase the APBO as of December 31, 1994 by approximately $575,000 and
the aggregate service and interest cost components of net periodic
postretirement benefit cost for 1994 by approximately $65,000.
Reconciliation of postretirement benefits to amounts recorded in the
Consolidated Balance Sheets:
December 31
1994 1993
(thousands)
APBO (a):
Retirees $ 20,813 $10,672
Fully eligible active plan participants 1,304 6,405
Other active plan participants 7,159 10,501
Unfunded APBO 29,276 27,578
Unrecognized transition obligation (21,139) (22,314)
Unrecognized net gain (loss) 5,220 (2,689)
Unrecognized prior service cost (863) -
Accrued postretirement benefit obligation
(included in Deferred Credits
and Other Liabilities-Other) $ 12,494 $ 2,575
(a) Based on weighted average discount rates of 8.5% in 1994 and 7% in 1993;
and increases in future salary levels of 4% to 5% in 1994 and 1993.
Long-Term Incentive Plan
The shareholders adopted a Long-Term Incentive Plan in 1992 for officers
and key employees. Awards issued under the Plan cannot exceed three million
common stock shares.
Under the stock option provision of the Plan, recipients are entitled to
receive shares of stock, and accumulated dividends as though reinvested if the
granted options are exercised within 10 years and the market price at the time
of exercise equals or exceeds the grant price. Because of the dividend
provision, the Company was required to expense $0.4, $0.1 and $0.2 million for
1994, 1993, and 1992, respectively. The expense represents accumulated and
reinvested dividends in addition to the appreciation in stock price since the
date of grant. If the stock price falls below the grant price, the cumulative
expense associated with those options is reversed.
Summarized information regarding the stock option shares granted and
outstanding:
1994 1993 1992
(shares under option)
Outstanding at January 1 145,125 86,000 -
Granted 69,125 63,125 86,000
Exercised (6,000) - -
Canceled (10,875) (4,000) -
Outstanding at December 31 197,375 145,125 86,000
Exercisable at December 31 102,125 41,000 -
Weighted average grant price of
shares outstanding $ 21.870 $ 22.604 $ 21.625
Option price of shares exercised $ 21.625 $ - $ -
3. INCOME TAXES
Income tax expense consists of:
1994 1993 1992
(thousands)
Current income taxes:
Federal $ 42,736 $ 41,207 $ 28,081
State 7,462 5,589 4,657
Total 50,198 46,796 32,738
Deferred income taxes, net:
Federal 17,005 22,274 20,488
State 3,519 3,228 3,491
Total 20,524 25,502 23,979
Investment tax credits, net (4,345) (4,345) (4,521)
Total income tax expense $ 66,377 $ 67,953 $ 52,196
The following table shows a reconciliation of the federal statutory
income tax rate to the effective rate reflected in the Consolidated Statements
of Income. See Note 1 to the Consolidated Financial Statements for a
discussion of the Company's income tax policies.
1994 1993 1992
Federal statutory income tax rate 35.0 % 35.0 % 34.0 %
Differences between book and tax
depreciation not normalized 1.2 1.3 1.7
Amortization of investment tax
credits (2.5) (2.5) (3.3)
State income taxes 4.2 3.3 3.9
Other 0.9 2.0 1.4
Effective income tax rate 38.8 % 39.1 % 37.7 %
The significant temporary differences resulting in deferred tax assets
and liabilities in the Consolidated Balance Sheets are as follows:
December 31
1994 1993
(thousands)
Depreciation differences $ 507,964 $ 476,637
Recoverable taxes 120,000 122,000
Other 14,731 25,534
Net deferred income tax liability $ 642,695 $ 624,171
The net deferred income tax liability consists of the following:
December 31
1994 1993
(thousands)
Gross deferred income tax assets $ (61,623) $ (63,187)
Gross deferred income tax liabilities 704,318 687,358
Net deferred income tax liability $ 642,695 $ 624,171
4. COMMITMENTS AND CONTINGENCIES
Nuclear Liability and Insurance
Liability Insurance
The Price-Anderson Act currently limits the combined public
liability of nuclear reactor owners to $8.9 billion for claims that could
arise from a single nuclear incident. The owners of Wolf Creek (the
Owners) carry the maximum available commercial insurance of $200 million.
The balance is provided by Secondary Financial Protection (SFP), an
assessment plan mandated by the Nuclear Regulatory Commission.
Under SFP, if there were a catastrophic nuclear incident involving
any of the nation's licensed reactors, the Owners would be subject to a
maximum retrospective assessment per incident of up to $79.3 million
($37.3 million, Company's share). The Owners are jointly and severally
liable for these charges, payable at a rate not to exceed $10 million
($4.7 million, Company's share) per incident per year, excluding
applicable premium taxes. The assessment, most recently revised in 1993,
is subject to an inflation adjustment every five years based on the
Consumer Price Index.
Property, Decontamination and Premature Decommissioning Insurance
The Owners also carry $2.8 billion ($1.3 billion, Company's share)
of property damage, decontamination and premature decommissioning
insurance for loss resulting from damage to the Wolf Creek facilities.
Nuclear insurance pools provide $0.5 billion of coverage, while Nuclear
Electric Insurance Limited (NEIL) provides $2.3 billion.
In the event of an accident, insurance proceeds must first be used
for reactor stabilization and site decontamination. The Company's share
of any remaining proceeds can be used for up to $1.2 billion of property
damage and up to $118 million in premature decommissioning costs to cover
a trust fund shortfall (see Note 1-Nuclear Plant Decommissioning Costs).
However, premature decommissioning coverage applies only if an accident
at Wolf Creek exceeds $500 million in property damage and decontamination
expenses.
Extra Expense Insurance Including Replacement Power
The Owners also carry additional insurance from NEIL to cover costs
of replacement power and other extra expenses incurred in the event of a
prolonged outage resulting from accidental property damage at Wolf Creek.
Under both NEIL policies, the Company is subject to retrospective
assessment if NEIL losses, with respect to each policy year, exceed the
accumulated funds available to the insurer under that policy. The
estimated maximum retrospective assessments for the Company's share under
the policies total approximately $13 million per year.
In the event of a catastrophic loss at Wolf Creek, the amount of
insurance available may not be adequate to cover property damage and
extra expenses incurred. Uninsured losses, to the extent not recovered
through rates, would be assumed by the Company and could have a material,
adverse effect on its financial condition and results of operations.
Nuclear Fuel Commitments
As of December 31, 1994, the Company's portion of Wolf Creek nuclear fuel
commitments included $180 million for enrichment and fabrication through 2014
and $12 million for uranium concentrates through 1997.
Tax Matters
The Company's federal income tax returns for 1985 through 1992 are
presently under examination by the Internal Revenue Service (IRS). The IRS
has issued Revenue Agent's Reports for the years 1985 through 1990. The
Reports include proposed adjustments that would reduce the Company's Wolf
Creek investment tax credit (ITC) by 25% or approximately $20 million and tax
depreciation by 23% or approximately $210 million. These amounts include the
continuing effect of the adjustments through December 31, 1994. These
adjustments, principally, are based upon the IRS's contention that (i) certain
start-up and testing costs considered to be costs of the plant, should be
treated as licensing costs, which do not qualify for ITC or accelerated
depreciation, and (ii) certain cooling and generating facilities should not
qualify for ITC or accelerated depreciation.
If the IRS were to prevail on all of these proposed adjustments, the
Company would be obligated to make cash payments, calculated through December
31, 1994, of approximately $105 million for additional federal and state
income taxes and $60 million for corresponding interest. After offsets for
deferred income taxes, these payments would reduce net income by approximately
$35 million.
The Company has filed a protest and is currently negotiating with the
appeals division of the IRS. Based upon their interpretation of applicable
tax principles, the tax treatment of similar costs and facilities with respect
to other plants, and discussions to date with the IRS appeals division, it is
the opinion of management and outside tax counsel that the IRS's proposed Wolf
Creek adjustments are substantially overstated. Management believes any
additional taxes and interest resulting from the final resolution of the
matter will not be material to the Company's financial condition or results of
operations.
Environmental Matters
The Company's operations must comply with federal, state and local
environmental laws and regulations. The generation of electricity utilizes,
produces and requires disposal of certain products and by-products including
polychlorinated biphenyl (PCB's), asbestos and other potentially hazardous
materials. The Federal Comprehensive Environmental Response, Compensation and
Liability Act (the Superfund law) imposes strict joint and several liability
for those who generate, transport or deposit hazardous waste as well as the
current property owner and predecessor owner at the time of contamination.
The Company continually conducts environmental audits designed to detect
contamination and assure compliance with governmental regulations. However,
compliance programs necessary to meet future environmental laws and
regulations governing water and air quality, including carbon dioxide
emissions, hazardous waste handling and disposal, toxic substances and the
effects of electromagnetic fields, could require substantial changes to
operations or facilities.
Interstate Power Company of Dubuque, Iowa (Interstate) filed a lawsuit in
1989 against the Company in the Federal District Court for the District of
Iowa seeking contribution and indemnity under the Superfund law for cleanup
costs of hazardous substances at the site of a demolished gas manufacturing
plant in Mason City, Iowa. The plant was operated by the Company for very
brief periods of time before it was demolished in 1952. The site and all
other properties owned in Iowa were sold to Interstate in 1957. Management
estimates that the cleanup could cost up to $8 million. This estimate is
based upon an evaluation of available information from on-going site
investigation and assessment activities, including the costs of such
activities.
In 1993, the Company, along with other parties to the lawsuit, received a
letter from the Environmental Protection Agency (EPA) notifying each such
party that it was considered a potentially responsible party for cleanup costs
at the site. In December 1994, the EPA listed the site on the National
Priorities List.
Management believes it has several valid defenses to this action. Even
if unsuccessful on the liability issue, management does not believe its
allocated share of the cleanup costs will be material to its financial
condition or results of operations.
Long-Term Coal Contracts
The Company's share of coal purchased under long-term contractual
arrangements was $21, $17, and $21 million in 1994, 1993 and 1992,
respectively. Under existing coal contracts, the Company's remaining share of
purchase commitments totals $152 million with obligations for the years 1995
through 1999 totaling $41, $30, $26, $9 and $9 million, respectively. Coal is
also purchased on the spot market.
Leases
The Company has a transmission line lease with another utility whereby,
with FERC approval, the rental payments can be increased by the lessor, after
which the Company is entitled to cancel the lease if able to secure an
alternative transmission path. Total commitments under this lease are
$2 million per year and $58 million over the remaining life of the lease if
the lease is not canceled.
Rental expense for other leases including railcars, computer equipment,
buildings, a transmission line and similar items was $16 to $19 million per
year during the last three years. Rental commitments under these leases total
$134 million over the remaining life of the leases with obligations for the
years 1995 through 1999 averaging $12 million per year. Capital leases are
not material and are included in these amounts.
Purchased Capacity Commitments
As of December 31, 1994, contracts to purchase capacity through 2016 from
other utilities totaled $262 million. During 1994, 1993 and 1992, capacity
purchases were $13, $10 and $7 million, respectively. For each of the next
five years these obligations include:
Cost Megawatts
(millions)
1995 $ 16 520
1996 25 530
1997 24 530
1998 24 530
1999 24 530
For the years 2000 through 2009, the Company has purchase capacity
contracts for approximately 179 megawatts per year at an average annual cost
of $13 million.
Other
As of December 31, 1994, KLT Investments Inc. has subscribed to an
additional $19 million investment in affordable housing partnerships and
intends to fund these investments through long-term borrowings.
5. SALE OF ACCOUNTS RECEIVABLE
As of December 31, 1994 and 1993, an undivided interest in $60 million of
designated customer accounts receivable was sold with limited recourse. Costs
of $2.8, $2.2 and $2.6 million for 1994, 1993 and 1992, respectively,
associated with the sale are included in Other Income and Deductions-
Miscellaneous.
6. SHORT-TERM BORROWINGS
Short-term borrowings consist of funds borrowed from banks or through the
sale of commercial paper as needed. The weighted average interest rate on
short-term debt outstanding at December 31, 1994 and 1993 was 6.2% and 4.0%,
respectively. As of December 31, 1994, under minimal fee arrangements, unused
bank lines of credit totaled $159 million.
7. COMMON STOCK EQUITY, PREFERRED STOCK AND REDEEMABLE PREFERRED STOCK
Common Stock Equity
In 1994, 2,000,000 shares of common stock were registered with the
Securities and Exchange Commission for a Dividend Reinvestment and Stock
Purchase Plan (the Plan). Under the Plan, common shareholders, directors and
employees have the opportunity to purchase shares of the common stock by
reinvesting dividends and/or making optional cash payments. The Company is
currently purchasing shares for the Plan on the open market.
At December 31, 1994, the Company held approximately 6,600 shares of its
common stock to be used for future distribution. The reacquired shares are
included in Investments and Nonutility Property on the Consolidated Balance
Sheets.
The Restated Articles of Consolidation contain a restriction relating to
the payment of dividends in the event common equity falls to 25% of total
capitalization.
If preferred stock dividends are not declared and paid when scheduled,
the Company cannot declare or pay its common stock dividends or purchase any
common shares. If the unpaid preferred stock dividends equal four or more
full quarterly dividends, the holders of preferred stock, voting as a single
class, could elect representatives to the Board of Directors.
Preferred Stock and Redeemable Preferred Stock
During 1992, the 130,000 shares of 7.72% Cumulative Preferred Stock
($13 million par value) were redeemed and retired. The $0.3 million premium
paid to redeem this stock was charged against retained earnings. Also, in
1992, $50 million Cumulative No Par Preferred Stock, Auction Series A
($100 per share stated value) was issued. The $0.9 million in costs
associated with this issue were charged to capital stock premium and expense.
Scheduled mandatory sinking fund requirements for the outstanding
redeemable 4% Cumulative Preferred Stock are $160,000 per year. The Company
has the option to redeem the $91 million Cumulative Preferred Stock at prices
approximating par or stated value.
As of December 31, 1994, 405,957 shares of $100 par Cumulative Preferred
Stock, 1,572,000 shares of Cumulative No Par Preferred Stock and 11,000,000
shares of no par Preference Stock were authorized.
8. LONG-TERM DEBT
Mortgage Bonds
In 1994, the remaining First Mortgage Bonds were retired resulting in the
retirement of the Indenture of Mortgage and Deed of Trust dated December 1,
1946. The Company is now authorized to issue mortgage bonds under the General
Mortgage Indenture and Deed of Trust dated December 1, 1986, as supplemented.
The Indenture constitutes a mortgage lien on substantially all utility plant.
As of December 31, 1994, $582 million of General Mortgage Bonds were
pledged under the Indenture to secure outstanding and unissued Medium-Term
Notes of $425 and $157 million, respectively.
Scheduled Maturities
Long-term debt maturities for the years 1995 through 1999 are $33, $74,
$24, $69, and $8 million, respectively.
Interest Rate Swap and Cap Agreements
As of December 31, 1994, the Company had entered into eight interest rate
swap contracts and one cap agreement with financial institutions to limit the
interest rate on $110 million of long-term debt. The swap agreements mature
from 1996 through 1998 and effectively fix interest rates on $90 million of
variable rate debt to a weighted average rate of 3.7% through 1996. The cap
agreement limits the interest rate on $20 million of variable rate debt to
4.5% in 1995, increasing to 5.5% through 1997. Had these agreements been
terminated at December 31, 1994, the Company would have realized a gain.
9. JOINTLY-OWNED ELECTRIC UTILITY PLANTS
Joint ownership agreements with other utilities provide undivided
interests in utility plants at December 31, 1994 as follows (in millions of
dollars):
Wolf Creek LaCygne Iatan
Unit Units Unit
Company's share 47% 50% 70%
Utility plant in service $ 1,337 $ 286 $ 248
Estimated accumulated depreciation
(Production plant only) $ 299 $ 157 $ 119
Nuclear fuel, net $ 41 $ - $ -
Company's accredited
capacity-megawatts 545 678 469
Each participant must fund their own portion of the plant's operating
expenses and capital expenditures. The Company's share of direct expenses is
included in the corresponding operating expenses in the Consolidated
Statements of Income.
10. QUARTERLY OPERATING RESULTS (UNAUDITED)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
(thousands)
1994
Operating revenues $199,295 $223,108 $253,771 $ 192,098
Operating income $ 20,603 $ 36,121 $ 61,458 $ 31,509
Net income $ 9,891 $ 24,776 $ 50,099 $ 20,009
Earnings per common share $ 0.15 $ 0.38 $ 0.80 $ 0.31
1993
Operating revenues $191,380 $208,323 $256,919 $ 200,828
Operating income $ 29,624 $ 38,878 $ 57,865 $ 29,935
Net income $ 15,800 $ 25,731 $ 44,920 $ 19,321
Earnings per common share $ 0.24 $ 0.40 $ 0.72 $ 0.30
The quarterly data is subject to seasonal fluctuations with peak periods
occurring during the summer months. See Note 2 to the Consolidated Financial
Statements-Pension Plans and Other Employee Benefits for a discussion of
quarterly costs associated with the 1994 early retirement program.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Kansas City Power & Light Company:
We have audited the consolidated financial statements of Kansas City
Power & Light Company and Subsidiary listed in the index on page 39 of this
Form 10-K. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Kansas City Power & Light Company and Subsidiary as of December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
January 30, 1995
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information concerning directors required by Item 401 of Regulation
S-K has been furnished by the Company in its definitive proxy statement dated
March 10, 1995, filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, and is incorporated
herein by reference.
Executive Officers
See Part I, page 5, entitled "Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K has been furnished
by the Company in its definitive proxy statement dated March 10, 1995, filed
with the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities and Exchange Act of 1934, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K has been furnished
by the Company in its definitive proxy statement dated March 10, 1995, filed
with the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities and Exchange Act of 1934, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.EXHIBITS AND REPORTS ON FORM 8-K
Page
No.
Financial Statements
a. Consolidated Balance Sheets - December 31, 1994, and 1993 18-19
b. Consolidated Statements of Income for the years ended 20
December 31, 1994, 1993, and 1992
c. Consolidated Statements of Cash Flows for the years ended 21
December 31, 1994, 1993, and 1992
d. Consolidated Statements of Cumulative Preferred Stock & 22
Long-Term Debt - December 31, 1994 and 1993
e. Consolidated Statements of Retained Earnings for the 22
years ended December 31, 1994, 1993, and 1992
f. Notes to Consolidated Financial Statements 23-36
g. Report of Independent Accountants 37
Exhibits
Exhibit
Number Description of Document
3-a *Restated Articles of Consolidation of the Company dated as of May 5, 1992
(Exhibit 4 to Registration Statement, Registration No. 33-54196).
3-b *By-laws of the Company, as amended and in effect on December 31, 1993
(Exhibit 3-b to Form 10-K for the year ended 1993).
4-a *General Mortgage and Deed of Trust dated as of December 1, 1986, between
the Company and United Missouri Bank N.A. (formerly United Missouri
Bank) of Kansas City, N.A., Trustee (Exhibit 4-bb to Form 10-K for
the year ended December 31, 1986).
4-b *Third Supplemental Indenture dated as of April 1, 1991, to Indenture
dated as of December 1, 1986 (Exhibit 4-aq to Registration
Statement, Registration No. 33-42187).
4-c *Fourth Supplemental Indenture dated as of February 15, 1992, to Indenture
dated as of December 1, 1986 (Exhibit 4-y to Form 10-K for year
ended December 31, 1991).
4-d *Fifth Supplemental Indenture dated as of September 15, 1992, to Indenture
dated as of December 1, 1986 (Exhibit 4-a to Form 10-Q dated
September 30, 1992).
4-e *Sixth Supplemental Indenture dated as of November 1, 1992, to Indenture
dated as of December 1, 1986 (Exhibit 4-z to Registration Statement,
Registration No. 33-54196).
4-f *Seventh Supplemental Indenture dated as of October 1, 1993, to Indenture
dated as of December 1, 1986 (Exhibit 4-a to Form 10-Q dated
September 30, 1993).
4-g *Eighth Supplemental Indenture dated as of December 1, 1993, to Indenture
dated as of December 1, 1986 (Exhibit 4 to Registration Statement,
Registration No. 33-51799).
4-h *Ninth Supplemental Indenture dated as of February 1, 1994, to
Indenture dated as of December 1, 1986 (Exhibit 4-h to Form 10-K for
year ended December 31, 1993).
4-i Tenth Supplemental Indenture dated as of November 1, 1994, to
Indenture dated as of December 1, 1986.
4-j *Resolution of Board of Directors Establishing 3.80% Cumulative Preferred
Stock (Exhibit 2-R to Registration Statement, Registration No. 2-
40239).
4-k *Resolution of Board of Directors Establishing 4% Cumulative Preferred
Stock (Exhibit 2-S to Registration Statement, Registration No. 2-
40239).
4-l *Resolution of Board of Directors Establishing 4.50% Cumulative Preferred
Stock (Exhibit 2-T to Registration Statement, Registration No. 2-
40239).
4-m *Resolution of Board of Directors Establishing 4.20% Cumulative Preferred
Stock (Exhibit 2-U to Registration Statement, Registration No. 2-
40239).
4-n *Resolution of Board of Directors Establishing 4.35% Cumulative Preferred
Stock (Exhibit 2-V to Registration Statement, Registration No. 2-
40239).
4-o *Certificate of Designation of Board of Directors Establishing the
$50,000,000 Cumulative No Par Preferred Stock, Auction Series A
(Exhibit 4-a to Form 10-Q dated March 31, 1992).
4-p *Indenture for Medium-Term Note Program dated as of April 1, 1991, between
the Company and The Bank of New York (Exhibit 4-bb to Registration
Statement, Registration No. 33-42187).
4-q *Indenture for Medium-Term Note Program dated as of February 15, 1992,
between the Company and The Bank of New York (Exhibit 4-bb to
Registration Statement, Registration No. 33-45736).
4-r *Indenture for Medium-Term Note Program dated as of November 15, 1992,
between the Company and The Bank of New York (Exhibit 4-aa to
Registration Statement, Registration No. 33-54196).
4-s Indenture for Medium-Term Note Program dated as of November 17,
1994, between the Company and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Smith Barney Inc.
10-a *Copy of Wolf Creek Generating Station Ownership Agreement between Kansas
City Power & Light Company, Kansas Gas and Electric Company and
Kansas Electric Power Cooperative, Inc. (Exhibit 10-d to Form 10-K
for the year ended December 31, 1981).
10-b *Copy of Receivables Purchase Agreement dated as of September 27, 1989,
between the Company, Commercial Industrial Trade-Receivables
Investment Company and Citicorp North America, Inc., (Exhibit 10-p
to Form 10-K for year ended December 31, 1989).
10-c *Copy of Amendment to Receivables Purchase Agreement dated as of August 8,
1991, between the Company, Commercial Industrial Trade-Receivables
Investment Company and Citicorp North America, Inc. (Exhibit 10-m to
Form 10-K for year ended December 31, 1991).
10-d *Long-Term Incentive Plan (Exhibit 28 to Registration Statement,
Registration 33-42187).
10-e *Copy of Indemnification Agreement entered into by the Company with each
of its officers and directors (Exhibit 10-O to Form 10-K for year
ended December 31, 1986).
10-f *Copy of Executive Incentive Compensation Plan (Exhibit 10-g to form 10-K
for year ended December 31, 1986).
10-g *Copy of Severance Agreement entered into by the Company with certain of
its executive officers (Exhibit 10 to Form 10-Q dated June 30,
1993).
10-h *Copy of Supplemental Executive Retirement and Deferred Compensation Plan
(Exhibit 10-h to Form 10-K for year ended December 31, 1993).
10-i *Copy of $50 million Letter of Credit and reimbursement agreement dated as
of August 19, 1993, with The Toronto-Dominion Bank (Exhibit 10-i to
Form 10-K for year ended December 31, 1993).
10-j *Copy of $56 million Letter of Credit and Reimbursement Agreement dated as
of August 19, 1993, with Societe Generale, Chicago Branch (Exhibit
10-j to Form 10-K for year ended December 31, 1993).
10-k *Copy of $50 million Letter of Credit and Reimbursement Agreement dated as
of August 19, 1993, with The Toronto-Dominion Bank (Exhibit 10-k to
Form 10-K for year ended December 31, 1993).
10-l *Copy of $40 million Letter of Credit and Reimbursement Agreement dated as
of August 19, 1993, with Deutsche Bank AG, acting through its New
York and Cayman Islands Branches (Exhibit 10-l to Form 10-K for year
ended December 31, 1993).
10-m *Copy of Railcar Lease dated as of April 15, 1994, between Shawmut Bank
Connecticut, National Association, and the Company (Exhibit 10 to
Form 10-Q for period ended June 30, 1994).
10-n *Copy of Amendment No. 2 to Receivables Purchase Agreement between the
Company and Ciesco L.P. and Citicorp North America, Inc. (Exhibit 10
to Form 10-Q for period ended September 30, 1994).
10-o Copy of Railcar Lease dated as of January 31, 1995, between First
Security Bank of Utah, National Association, and the Company.
12 Computation of Ratios of Earnings to Fixed Charges.
23-a Consent of Counsel.
23-b Consent of Independent Accountants--Coopers & Lybrand L.L.P.
24 Powers of Attorney.
* Filed with the Securities and Exchange Commission as exhibits to prior
registration statements (except as otherwise noted) and are incorporated herein
by reference and made a part hereof. The exhibit number and file number of the
documents so filed, and incorporated herein by reference, are stated in
parenthesis in the description of such exhibit.
Copies of any of the exhibits filed with the Securities and Exchange
Commission in connection with this document may be obtained from the Company
upon written request.
Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Kansas
City, and State of Missouri on the 28th day of March, 1995.
KANSAS CITY POWER & LIGHT COMPANY
By /s/Drue Jennings
(Drue Jennings)
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board and )
/s/Drue Jennings President (Principal )
(Drue Jennings) Executive Officer) )
)
Vice President-Finance and )
/s/John DeStefano Treasurer (Principal )
(John DeStefano) Financial Officer )
)
/s/Neil Roadman Controller (Principal )
(Neil Roadman) Accounting Officer )
)
David L. Bodde* Director )
)
William H. Clark* Director ) March 28, 1995
)
Robert J. Dineen* Director )
)
Arthur J. Doyle* Director )
)
W. Thomas Grant II* Director )
)
George E. Nettels, Jr.* Director )
)
Dr. Linda Hood Talbott* Director )
)
Robert H. West* Director )
)
*By /s/Drue Jennings
(Drue Jennings)
Attorney-in-fact