Exhibit 99
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-7324
KANSAS GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
KANSAS 48-1093840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
P.O. Box 208
Wichita, Kansas 67201
(Address of principal executive offices)
(316) 261-6611
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 11, 1994
Common Stock (No par value) 1,000
Registrant meets the conditions of General Instruction H(1)(a) and (b) to Form
10-Q and is therefore filing this form with a reduced disclosure format.
KANSAS GAS AND ELECTRIC COMPANY
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets 3
Statements of Income 4 & 5
Statements of Cash Flows 6 & 7
Statements of Capitalization 8
Statements of Common Stock Equity 9
Notes to Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information
Item 4. Submission of Matters to a vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Thousands of Dollars)
March 31, December 31,
1994 1993
(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . $3,348,737 $3,339,832
Less - Accumulated depreciation . . . . . . . . . . . 810,242 790,843
2,538,495 2,548,989
Construction work in progress . . . . . . . . . . . . 33,849 28,436
Nuclear fuel (net) . . . . . . . . . . . . . . . . . 31,361 29,271
Net utility plant . . . . . . . . . . . . . . . . . 2,603,705 2,606,696
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust . . . . . . . . . . . . . . . . 14,273 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . 11,417 10,941
25,690 24,145
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . 65 63
Accounts receivable and unbilled revenues (net) . . . 38,068 11,112
Advances to parent company. . . . . . . . . . . . . . 130,945 192,792
Fossil fuel, at average cost, . . . . . . . . . . . . 12,256 7,594
Materials and supplies, at average cost . . . . . . . 30,588 29,933
Prepayments and other current assets. . . . . . . . . 9,441 14,995
221,363 256,489
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . 113,890 113,479
Deferred coal contract settlement costs . . . . . . . 20,424 21,247
Phase-in revenues . . . . . . . . . . . . . . . . . . 74,564 78,950
Other deferred plant costs. . . . . . . . . . . . . . 31,952 32,008
Corporate-owned life insurance (net) . . . . . . . . 4,200 45
Other . . . . . . . . . . . . . . . . . . . . . . . . 49,986 54,420
295,016 300,149
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $3,145,774 $3,187,479
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . $1,958,688 $1,899,221
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . 31,600 155,800
Long-term debt due within one year. . . . . . . . . . - 238
Accounts payable. . . . . . . . . . . . . . . . . . . 46,204 51,095
Accrued taxes . . . . . . . . . . . . . . . . . . . . 41,673 12,185
Accrued interest. . . . . . . . . . . . . . . . . . . 14,412 7,381
Other . . . . . . . . . . . . . . . . . . . . . . . . 9,419 9,427
143,308 236,126
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . 634,857 646,159
Deferred investment tax credits . . . . . . . . . . . 77,246 78,048
Deferred gain from sale-leaseback . . . . . . . . . . 259,571 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . 72,104 65,944
1,043,778 1,052,132
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . $3,145,774 $3,187,479
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Three Months Ended
March 31,
1994 1993
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . $ 136,604 $ 138,481
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . 20,839 21,229
Nuclear fuel. . . . . . . . . . . . . . . . . . . . 3,863 2,707
Power purchased . . . . . . . . . . . . . . . . . . . 1,252 2,007
Other operations. . . . . . . . . . . . . . . . . . . 30,631 27,538
Maintenance . . . . . . . . . . . . . . . . . . . . . 11,340 10,865
Depreciation and amortization . . . . . . . . . . . . 19,119 18,838
Amortization of phase-in revenues . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . 6,469 5,217
State income. . . . . . . . . . . . . . . . . . . . 1,710 1,417
General . . . . . . . . . . . . . . . . . . . . . . 12,117 11,503
Total operating expenses. . . . . . . . . . . . . 111,726 105,707
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . 24,878 32,774
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . (1,235) 1,469
Miscellaneous (net) . . . . . . . . . . . . . . . . . 858 6,276
Income taxes (net). . . . . . . . . . . . . . . . . . 1,787 (1,554)
Total other income and deductions . . . . . . . . 1,410 6,191
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . 26,288 38,965
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . 12,093 14,104
Other . . . . . . . . . . . . . . . . . . . . . . . . 1,353 1,557
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . (368) (427)
Total interest charges. . . . . . . . . . . . . . 13,078 15,234
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 13,210 $ 23,731
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Twelve Months Ended
March 31,
1994 1993
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 615,120 $ 562,019
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 92,998 74,930
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 14,431 12,833
Power purchased . . . . . . . . . . . . . . . . . . . . . 9,109 5,214
Other operations. . . . . . . . . . . . . . . . . . . . . 122,041 118,974
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 47,215 46,821
Depreciation and amortization . . . . . . . . . . . . . . 75,811 74,385
Amortization of phase-in revenues . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 40,805 22,740
State income. . . . . . . . . . . . . . . . . . . . . . 9,863 6,149
General . . . . . . . . . . . . . . . . . . . . . . . . 45,817 41,658
Total operating expenses. . . . . . . . . . . . . . . 475,635 421,248
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 139,485 140,771
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . 5,137 10,777
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 3,853 15,693
Income taxes (net). . . . . . . . . . . . . . . . . . . . 5,568 (2,850)
Total other income and deductions . . . . . . . . . . 14,558 23,620
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 154,043 164,391
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 51,897 56,993
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,871 13,334
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (1,307) (1,608)
Total interest charges. . . . . . . . . . . . . . . . 56,461 68,719
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 97,582 $ 95,672
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Three Months Ended
March 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 13,210 $ 23,731
Depreciation and amortization . . . . . . . . . . . . . . . 19,119 18,838
Other amortization (including nuclear fuel) . . . . . . . . 2,806 1,876
Deferred income taxes and investment tax credits (net). . . 1,907 2,364
Amortization of phase-in revenues . . . . . . . . . . . . . 4,386 4,386
Corporate-owned life insurance. . . . . . . . . . . . . . . (4,519) (4,154)
Amortization of gain from sale-leaseback. . . . . . . . . . (2,410) (2,410)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (26,956) (26,819)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (4,662) 3,426
Accounts payable. . . . . . . . . . . . . . . . . . . . . (4,891) (670)
Interest and taxes accrued. . . . . . . . . . . . . . . . 36,519 20,976
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,891 2,919
Changes in other assets and liabilities . . . . . . . . . . (4,998) (6,710)
Net cash flows from operating activities . . . . . . . 34,402 37,753
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 18,500 15,535
Corporate-owned life insurance policies . . . . . . . . . . 281 427
Net cash flows used in investing activities. . . . . . 18,781 15,962
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (124,200) 28,300
Advances to parent company (net). . . . . . . . . . . . . . 61,847 (3,885)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 113,982 -
Other long-term debt (net). . . . . . . . . . . . . . . . . (67,893) (46,870)
Borrowings against life insurance policies (net). . . . . . 645 621
Net cash flows used in financing activities. . . . . . (15,619) (21,834)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . 2 (43)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 63 892
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 65 $ 849
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 5,993 $ 10,986
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . - -
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Twelve Months Ended
March 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 97,582 $ 95,672
Depreciation and amortization . . . . . . . . . . . . . . . 75,811 74,385
Other amortization (including nuclear fuel) . . . . . . . . 12,184 10,805
Deferred income taxes and investment tax credits (net). . . 22,115 11,690
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (22,015) (18,858)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,640) (9,641)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (706) (25,740)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 419 7,851
Accounts payable. . . . . . . . . . . . . . . . . . . . . 2,447 (7,886)
Interest and taxes accrued. . . . . . . . . . . . . . . . 6,490 6,631
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (16,700) (5,537)
Changes in other assets and liabilities . . . . . . . . . . (14,818) (48,111)
Net cash flows from operating activities. . . . . . . . . 170,714 108,805
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 69,851 68,673
Corporate-owned life insurance policies . . . . . . . . . . 27,119 20,663
Death proceeds of corporate-owned life insurance policies . (10,157) (6,792)
Merger:
Purchase of KG&E common stock-net of cash received. . . - 432,043
Purchase of KG&E preferred stock. . . . . . . . . . . . - 19,665
Net cash flows used in investing activities. . . . . 86,813 534,252
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (90,200) 78,200
Advances to parent company (net). . . . . . . . . . . . . . (52,771) (78,174)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 178,982 135,000
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (140,000) (125,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . (13,980) (32,372)
Borrowings against life insurance policies (net). . . . . . 183,284 (5,028)
Revolving credit agreement (net). . . . . . . . . . . . . . (150,000) -
Issuance of KCA common stock. . . . . . . . . . . . . . . . - 453,670
Net cash flows (used in) from financing activities . . . (84,685) 426,296
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (784) 849
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 849 -
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 65 $ 849
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 72,660 $ 74,437
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 24,854 14,225
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
March 31, December 31,
1994 1993
(Unaudited)
COMMON STOCK EQUITY:
(See Statements of Common Stock Equity)
Common stock, without par value, authorized and issued
1,000 shares . . . . . . . . . . . . . . . . . . . . . . $1,065,634 $1,065,634
Retained earnings. . . . . . . . . . . . . . . . . . . . . 193,254 180,044
Total common stock equity. . . . . . . . . . . . . . . . 1,258,888 64% 1,245,678 66%
LONG-TERM DEBT:
First Mortgage Bonds:
Series Due 1994 1993
5-5/8% 1996 $ 16,000 $ 16,000
7.6% 2003 135,000 135,000
6-1/2% 2005 65,000 65,000
6.20% 2006 100,000 -
316,000 216,000
Pollution Control Bonds:
6.80% 2004 14,500 14,500
5-7/8% 2007 21,940 21,940
6% 2007 10,000 10,000
5.10% 2023 13,982 -
7.0% 2031 327,500 327,500
387,922 373,940
Total bonds . . . . . . . . . . . . . . . . . . . . . . 703,922 589,940
Other Long-Term Debt:
Pollution control obligations:
5-3/4% series 2003 - 13,980
Other long-term agreement 1995 - 53,913
Total other long-term debt. . . . . . . . . . . . . . - 67,893
Less:
Unamortized premium and discount (net) . . . . . . . . . . 4,122 4,052
Long-term debt due within one year . . . . . . . . . . . . - 238
Total long-term debt . . . . . . . . . . . . . . . . . . 699,800 36% 653,543 34%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . $1,958,688 100% $1,899,221 100%
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF COMMON STOCK EQUITY
(Thousands of Dollars, Except Shares)
(Unaudited)
Common Stock Treasury Stock
Other
Paid-in Retained
Shares Amount Capital Earnings Shares Amount Total
BALANCE DECEMBER 31, 1991. . 40,997,745 637,003 284 170,598 (9,996,426) (199,255) 608,630
(Predecessor)
Net income 6,040 6,040
Cash dividends:
Common stock-$0.43 per
share. . . . . . . . . (13,330) (13,330)
Preferred stock. . . . . (205) (205)
Employee stock plans . . . (12) (966) (12)
Merger of KG&E with KCA. . (40,997,745) (636,991) (284) (163,103) 9,997,392 199,255 (601,123)
MARCH 31, 1992
Subtotal-KG&E (Predecessor). -0- -0- -0- -0- -0- -0- -0-
KCA common stock issued. . 1,000 $1,065,634 - - - - $1,065,634
Net income . . . . . . . . $ 71,941 71,941
BALANCE DECEMBER 31, 1992. . 1,000 1,065,634 - 71,941 - - 1,137,575
(Successor)
Net Income . . . . . . . . 108,103 108,103
BALANCE DECEMBER 31, 1993. . 1,000 $1,065,634 $ - $ 180,044 - $ - $1,245,678
(Successor)
Net Income . . . . . . . . 13,210 13,210
BALANCE MARCH 31, 1994 . . . 1,000 $1,065,634 $ - $ 193,254 - $ - $1,258,888
(Successor)
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND OTHER INFORMATION
General. On March 31, 1992, Western Resources, Inc. (formerly The Kansas
Power and Light Company) (Western Resources, Parent Company) through its
wholly-owned subsidiary KCA Corporation (KCA), acquired all of the outstanding
common and preferred stock of Kansas Gas and Electric Company (KG&E) for $454
million in cash and 23,479,380 shares of Western Resources common stock (the
Merger).
The Company owns 47% of the Wolf Creek Nuclear Operating Corporation
(WCNOC), the operating company for the Wolf Creek Generating Station (Wolf
Creek). The Company records its proportionate share of all transactions of
WCNOC as it does other jointly-owned facilities.
The financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the accompanying condensed
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
the Company as of March 31, 1994, and December 31, 1993, and the results of
its operations for the three and twelve month periods ended March 31, 1994 and
1993. These condensed financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's 1993
Annual Report on Form 10-K.
The accounting policies of the Company are in accordance with generally
accepted accounting principles as applied to regulated public utilities. The
accounting and rates of the Company are subject to requirements of the Kansas
Corporation Commission (KCC) and the Federal Energy Regulatory Commission.
Cash Surrender Value of Life Insurance Contracts. The following amounts
related to corporate-owned life insurance (COLI) contracts, primarily with one
highly rated major insurance company, are recorded on the balance sheets
(millions of dollars):
March 31, December 31,
1994 1993
Cash surrender value of contracts $273.9 $269.1
Prepaid COLI 4.7 9.5
Borrowings against contracts (269.7) (269.0)
COLI (net) $ 8.9 $ 9.6
Statements of Cash Flows. For purposes of the statements of cash flows,
the Company considers highly liquid collateralized debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Reclassifications. Certain amounts in prior periods have been
reclassified to conform with classifications used in the current year
presentation.
2. SHORT-TERM DEBT
The Company's short-term financing requirements are satisfied through
short-term bank loans and borrowings under unsecured lines of credit
maintained with banks. At March 31, 1994, the Company had bank credit
arrangements available of $35 million.
3. COMMITMENTS AND CONTINGENCIES
Environmental. The Company and the Kansas Department of Health and
Environment entered into a consent agreement to perform preliminary
assessments of six former manufactured gas sites. The preliminary assessments
of these sites have been completed at minimal cost. Until such time that risk
assessments are completed at these sites, it will be impossible to predict the
cost of remediation. However, the company is aware of other utilities in
Region VII of the EPA (Kansas, Missouri, Nebraska, and Iowa) which have
incurred remediation costs for such sites ranging between $500,000 and $10
million, depending on the site. The Company is also aware that the KCC has
permitted another Kansas utility to recover a portion of the remediation costs
through rates. To the extent that such remediation costs are not recovered
through rates, the costs could be material to the Company's financial position
or results of operations depending on the degree of remediation and number of
years over which the remediation must be completed.
Spent Nuclear Fuel Disposal. Under the Nuclear Waste Policy Act of 1982,
the U.S. Department of Energy (DOE) is responsible for the ultimate storage
and disposal of spent nuclear fuel removed from nuclear reactors. Under a
contract with the DOE for disposal of spent nuclear fuel, the Company pays a
quarterly fee to DOE of one mill per kilowatthour on net nuclear generation.
These fees are included as part of nuclear fuel expense.
Decommissioning. In 1988 the Company estimated that it would expend
approximately $725 million for its share of Wolf Creek decommissioning costs
primarily during the period from 2025 through 2031. Such costs, estimated to
be approximately $97 million in 1988 dollars, are currently authorized in
rates. These costs were calculated using an assumed inflation rate of 5.15%
over the remaining service life, in 1988, of 37 years.
Decommissioning costs, calculated in the 1988 estimate, are being charged
to operating expenses. Amounts so expensed ($3.5 million in 1993 increasing
annually to $5.5 million in 2024) and earnings on trust fund assets are
deposited in an external trust fund which, when fully funded (assuming a
return on trust assets of 7%) will be used solely for the physical
decommissioning of Wolf Creek (immediate dismantlement method). Electric
rates charged to customers provide for recovery of these decommissioning costs
over the life of Wolf Creek.
The Company's investment in the decommissioning fund, including
reinvested earnings was $14.3 and $13.2 million at March 31, 1994, and
December 31, 1993, respectively. These amounts are reflected in other
property and investments, decommissioning trust, and the related liability is
included in deferred credits and other liabilities, other, on the consolidated
balance sheets.
On September 1, 1993, WCNOC filed an application with the KCC for an
order approving a 1993 Wolf Creek Decommissioning Cost Study which estimates
the Company's share of Wolf Creek decommissioning costs at approximately $174
million in 1993 dollars. If approved by the KCC, management expects
substantially all such cost increases to be recovered through the ratemaking
process.
The Company carries $164 million in premature decommissioning insurance
in the event of a shortfall in the trust fund. The insurance coverage has
several restrictions. One of these is that it can only be used if Wolf Creek
incurs an accident exceeding $500 million in expenses to safely stabilize the
reactor, to decontaminate the reactor and reactor station site in accordance
with a plan approved by the Nuclear Regulatory Commission (NRC), and to pay
for on-site property damages. If the amount designated as decommissioning
insurance is needed to implement the NRC-approved plan for stabilization and
decontamination, it would not be available for decommissioning purposes.
Nuclear Insurance. The Price-Anderson Act limits the combined public
liability of the owners of nuclear power plants to $9.3 billion for a single
nuclear incident. The Wolf Creek owners (Owners) have purchased the maximum
available private insurance of $200 million and the balance is provided by an
assessment plan mandated by the NRC. Under this plan, the Owners are jointly
and severally subject to a retrospective assessment of up to $79.3 million
($37.3 million, Company's share) in the event there is a nuclear incident
involving any of the nation's licensed reactors. This assessment is subject
to an inflation adjustment based on the Consumer Price Index. There is a
limitation of $10 million ($4.7 million, Company's share) in retrospective
assessments per incident per year.
The Owners carry decontamination liability, premature decommissioning
liability and property damage insurance for Wolf Creek totalling approximately
$2.8 billion ($1.3 billion, Company's share). This insurance is provided by a
combination of "nuclear insurance pools" ($1.3 billion) and Nuclear Electric
Insurance Limited (NEIL) ($1.5 billion). In the event of an accident,
insurance proceeds must first be used for reactor stabilization and site
decontamination. The remaining proceeds from the $2.8 billion insurance
coverage ($1.3 billion, Company's share), if any, can be used for property
damage up to $1.1 billion (Company's share) and premature decommissioning
costs up to $117.5 million (Company's share) in excess of funds previously
collected for decommissioning (as discussed under "Decommissioning"), with the
remaining $47 million (Company's share) available for either property damage
or premature decommissioning costs.
The Owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred
at any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves, and other NEIL resources, the Company may be subject to
retrospective assessments of approximately $9 million per year.
There can be no assurance that all potential losses or liabilities will
be insured or that the amount of insurance will be sufficient to cover them.
Any substantial losses not covered by insurance, to the extent not recoverable
through rates, could have a material adverse effect on the Company's financial
position and results of operations.
Clean Air Act. The Clean Air Act Amendments of 1990 (the Act) require a
two-phase reduction in sulfur dioxide and oxides of nitrogen (NOx) emissions
effective in 1995 and 2000 and a probable reduction in toxic emissions. To
meet the monitoring and reporting requirements under the acid rain program,
the Company is installing continuous emission monitoring and reporting
equipment at a total cost of approximately $2.3 million. At December 31,
1993, the Company had completed approximately $850 thousand of these capital
expenditures with the remaining $1.4 million of capital expenditures to be
completed in 1994 and 1995. The Company does not expect additional equipment
to reduce sulfur emissions to be necessary under Phase II. The Company
currently has no Phase I affected units.
The NOx and toxic limits, which were not set in the law, will be
specified in future EPA regulations. The EPA has issued for public comment
preliminary NOx regulations for Phase I group 1 units. Regulations for Phase
II units and Phase I group 2 units are mandated in the Act to be promulgated
by January 1, 1997. Although the Company has no Phase I units, the final
regulations for Phase I group 1 may allow for early compliance for Phase II
group 1 units. Until such time as the Phase I group 1 NOx regulations are
final, the Company will be unable to determine its compliance options or
related compliance costs.
Fuel Commitments. To supply a portion of the fuel requirements for its
generating plants, the Company has entered into various commitments to obtain
nuclear fuel, coal and natural gas. Some of these contracts contain
provisions for price escalation and minimum purchase commitments. At
December 31, 1993, WCNOC's nuclear fuel commitments (Company's share) were
approximately $18.0 million for uranium concentrates expiring at various times
through 1997, $123.6 million for enrichment expiring at various times through
2014 and $45.5 million for fabrication through 2012. At December 31, 1993,
the Company's coal and natural gas contract commitments in 1993 dollars under
the remaining term of the contracts were $666 million and $20.4 million,
respectively. The largest coal contract was renegotiated early in 1993 and
expires in 2020 and the remaining coal contracts expiring at various times
through 2013. The majority of natural gas contracts expire in 1995 with
automatic one-year extension provisions. In the normal course of business,
additional commitments and spot market purchase will be made to obtain
adequate fuel supplies.
For additional information with respect to Commitments and Contingencies
see Note 3, COMMITMENTS AND CONTINGENCIES in the Company's 1993 Annual Report
on Form 10-K.
4. LEGAL PROCEEDINGS
For information with respect to Legal Proceedings see Note 10, LEGAL
PROCEEDINGS in the Company's 1993 Annual Report on Form 10-K.
5. RATE MATTERS AND REGULATION
For information with respect to Rate Matters and Regulation see Note 4
RATE MATTERS AND REGULATION in the Company's 1993 Annual Report on Form 10-K.
6. INCOME TAXES
Total income tax expense included in the Statements of Income reflects
the Federal statutory rate of 35% since January 1, 1993 and 34% for all prior
periods. The Federal statutory rate produces effective income tax rates of
32.6% and 25.7% for the three month periods, and 31.6% and 24.9% for the
twelve month periods ended March 31, 1994 and 1993, respectively. The
effective income tax rates vary from the Federal statutory rate due to the
permanent differences, including the amortization of investment tax credits.
For additional information with respect to Income Taxes see Note 9,
INCOME TAXES in the Company's 1993 Annual Report on Form 10-K.
KANSAS GAS AND ELECTRIC COMPANY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with Item 7 of the
Company's Annual Report on Form 10-K for 1993.
The following updates the information provided in the 1993 Form 10-K, and
analyzes the changes in the results of operations between the three month
periods ended March 31, 1994 and comparable periods of 1993.
FINANCIAL CONDITION
General. The Company had net income for the first quarter of 1994 of
$13.2 million compared to $23.7 million for the same period of 1993. The
decrease in income is primarily the result of the loss of the accelerated
amortization of certain deferred income tax reserves and decreased retail
electric sales as a result of milder winter temperatures in 1994 compared to
1993. Effective December 31, 1993, the Company had fully amortized its
deferred income tax reserves related to the allowance for borrowed funds used
during construction capitalized for Wolf Creek. The loss of the amortization
of these deferred income tax reserves reduced net income by approximately $3
million in the first quarter of 1994.
Net income for the twelve months ending March 31, 1994, of $97.6 million,
increased from net income of $95.7 million for the comparable period of 1993.
The increase in net income is primarily due to increased sales and lower
interest charges.
Liquidity and Capital Resources. The KG&E common and preferred stock was
redeemed in connection with the Merger, leaving 1,000 shares of common stock
held by Western Resources. The debt structure of the Company and available
sources of funds were not affected by the Merger.
The Company's short-term debt balance at March 31, 1994, decreased
approximately $124 million from December 31, 1993, primarily as a result of
the issuance, on January 20, 1994, of $100 million of First Mortgage Bonds,
6.20% Series due January 15, 2006.
On February 17, 1994, the Company refinanced the City of La Cygne,
Kansas,
5 3/4% Pollution Control Revenue Refunding Bonds Series 1973, $13,980,000
principal amount, with 5.10% Pollution Control Revenue Refunding Bonds Series
1994, $13,982,500 principal amount.
On April 28, 1994, three series of Market-Adjusted Tax Exempt Bonds
totalling $46.4 million were sold on behalf of the Company at a rate of 2.95%
for the initial auction period. The net proceeds from the new issues,
together with available cash, were used to refund three series of pollution
control bonds totalling $46.4 million bearing interest rates between 5 7/8%
and 6.8%.
OPERATING RESULTS
The following discussion explains variances for the three and twelve
months ended March 31, 1994, to the comparable periods of 1993.
Revenues. The Company's revenues vary with levels of usage as a result
of changing weather conditions during comparable periods and are sensitive to
seasonal fluctuations between consecutive periods.
Changes in electric sales volumes (decrease):
3 Months 12 Months
Ended Ended
Residential (8.9)% 6.5%
Commercial 2.6% 4.5%
Industrial (6.0)% 0.6%
Total Retail (4.8)% 3.3%
Wholesale 140.1% 86.7%
Total electric sales 13.1% 15.5%
Revenues for the first quarter of 1994, of $136.6 million, were slightly
lower than the first quarter of 1993, of $138.5 million, due to the milder
winter temperatures experienced in the Company's service territory compared to
last year. Retail electric kilowatt hour sales for the quarter decreased due
primarily to the decrease in demand from residential customers for space
heating.
Partially offsetting these decreases was an increase in wholesale
revenues of $5.7 million as a result of an increase in interchange sales to
other utilities.
Revenues for the twelve months ended March 31, 1994, of $615.1 million,
increased approximately nine percent from revenues of $562.0 million for the
comparable period of 1993. The increase in revenues is primarily a result of
the $22.1 million increase in wholesale revenues as a result of other
utilities' need for power to meet peak demand periods while those utilities'
units were out of service due to the 1993 summer flooding. All customer
classes experienced increased sales volumes as summer temperatures returned to
near normal levels during 1993. Residential, commercial, and industrial
revenues increased $14.8, $7.3, and $3.6 million, respectively, as a result of
the increase in sales volume.
Operating Expenses. Total operating expenses increased approximately six
percent for the first quarter compared the same period of 1993. The increase
can be attributed primarily to a 23 percent increase in federal and state
income taxes, an 11 percent increase in other operations expense, and a five
percent increase in general taxes.
The increase in federal income taxes is due to the absence of the
accelerated amortization of deferred income tax reserves relating to the
allowance for borrowed funds used during construction capitalized for Wolf
Creek. This amortization was completed on December 31, 1993. The loss of the
amortization of these deferred income tax reserves reduced net income by
approximately $3 million in the first quarter of 1994. Other operations
expense increased primarily due to increases in power supply expenses other
than fuel.
Total operating expenses increased approximately 13 percent for the
twelve months ended March 31, 1994, compared to the comparable period of 1993.
The increase is primarily the result of a $23.6 million increase in fuel
expense and purchased power due to increased electric generation caused by the
increase in customer demand, a $21.8 million increase in federal and state
income taxes, and higher general taxes of $4.2 million. The increase in
income taxes is a result of higher net income and the loss of the amortization
of the deferred income tax reserves related to Wolf Creek.
Other Income and Deductions. Other income and deductions, net of taxes,
decreased significantly for the three months ended March 31, 1994, compared to
the same period in 1993 primarily due to increased interest expense on COLI
borrowings.
Other income and deductions, net of taxes, decreased to $14.6 million for
the twelve months ended March 31, 1994 compared to $23.6 million for the
twelve months ended March 31, 1993. The decrease is primarily as a result of
increased interest expense on COLI borrowings. The decrease for 1994 also
reflects the positive impact, for the twelve months ended March 31, 1993, of
the recovery of $4.3 million of a previously written-off investment recorded
in the second quarter of 1992.
Interest Expense. Interest expense decreased approximately 14 percent
for the quarter and approximately 19 percent for the twelve months ended March
31, 1994, compared to the same periods of 1993. The decrease resulted
primarily from lower interest rates on variable-rate debt and the refinancing
of higher cost fixed-rate debt. Also accounting for the decrease in interest
expense was the impact of increased COLI borrowings during 1993, which reduce
the need for other long-term debt and thereby reduced interest expense.
KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Information required by Item 4 is omitted pursuant to General Instruction
H(2)(b) to Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kansas Gas and Electric Company
Date May 11, 1994 By Richard D. Terrill
Richard D. Terrill,
Secretary, Treasurer and
General Counsel