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FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: February 11, 1994
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
MISSOURI 1-707 44-0308720
(State of other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) (File Number) Identification No.)
1201 Walnut, Kansas City, Missouri 64106
(Address of principal executive offices)
Registrant's telephone number - (816) 556-2200
Item 5. Other Events
1993 Financials
The following listed financial statements and other documents of registrant
are attached hereto and filed as a part of this Current Report on Form 8-K:
1. Financial Statements and Footnotes to Financial Statements as of December
31, 1993 and 1992, and for each of the three years in the period ended
December 31, 1993; and
2. Independent Auditors Report; and
3. Management's Discussion and Analysis of Operating Results.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31 December 31
1993 1992
ASSETS (Thousands)
UTILITY PLANT, at original cost (Notes 1, 8 and 9)
Electric $ 3,240,384 $ 3,133,059
Less-Accumulated depreciation 1,019,714 948,266
Net utility plant in service 2,220,670 2,184,793
Construction work in progress 67,766 65,965
Nuclear fuel, net of amortization of
$76,722,000 and $78,735,000 29,862 34,210
Total 2,318,298 2,284,968
REGULATORY ASSET - DEFERRED WOLF CREEK COSTS
(Note 1) 29,118 39,484
REGULATORY ASSET - RECOVERABLE TAXES (Note 1) 122,000 94,000
INVESTMENTS AND NONUTILITY PROPERTY 28,454 27,570
CURRENT ASSETS
Cash 1,539 128
Special deposit for the retirement of debt 60,118 -
Receivables
Customer accounts receivable (Note 5) 29,320 14,372
Other receivables 19,340 24,043
Fuel inventories, at average cost 14,550 20,625
Materials and supplies, at average cost 44,157 45,263
Prepayments 4,686 4,209
Deferred income taxes 3,648 5,553
Total 177,358 114,193
DEFERRED CHARGES
Regulatory Assets (Note 1)
Settlement of fuel contracts 20,634 25,751
KCC Wolf Creek carrying costs 9,575 12,311
MPSC rate phase-in plan - 7,072
Other 31,899 26,798
Other deferred charges 17,732 14,776
Total 79,840 86,708
Total $ 2,755,068 $ 2,646,923
LIABILITIES
CAPITALIZATION (Notes 7 and 8)
Common stock-authorized 150,000,000 shares
without par value-61,908,726 shares issued
and outstanding-stated value $ 449,697 $ 449,697
Retained earnings 418,201 405,985
Capital stock premium and expense (1,747) (1,758)
Common stock equity 866,151 853,924
Cumulative preferred stock 89,000 89,000
Cumulative preferred stock (redeemable) 1,756 1,916
Long-term debt 733,664 788,209
Total 1,690,571 1,733,049
CURRENT LIABILITIES
Notes payable to banks (Note 6) 4,000 -
Commercial paper (Note 6) 25,000 33,000
Current maturities of long-term debt 134,488 26,500
Accounts payable 59,421 77,162
Dividends declared 423 423
Accrued taxes 27,800 19,864
Accrued interest 15,575 12,949
Accrued payroll and vacations 20,127 18,044
Accrued refueling outage costs (Note 1) 7,262 12,600
Other 8,531 7,631
Total 302,627 208,173
DEFERRED CREDITS
Deferred income taxes 627,819 576,222
Deferred investment tax credits 87,185 91,530
Other 46,866 37,949
Total 761,870 705,701
COMMITMENTS AND CONTINGENCIES (Note 4)
Total $ 2,755,068 $ 2,646,923
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1993 1992 1991
(Thousands)
ELECTRIC OPERATING REVENUES $ 857,450 $ 802,668 $ 825,101
OPERATING EXPENSES
Operation
Fuel 130,117 130,032 132,100
Purchased power 31,403 21,868 22,226
Other 184,633 175,937 162,548
Maintenance 78,550 81,163 80,922
Depreciation 91,110 88,768 86,795
Taxes
Income (Note 3) 69,502 51,691 61,871
General 95,659 92,461 88,525
Amortization of
MPSC rate phase-in plan (Note 1) 7,072 7,072 7,072
Deferred Wolf Creek costs (Note 1) 13,102 13,102 11,734
Total 701,148 662,094 653,793
OPERATING INCOME 156,302 140,574 171,308
OTHER INCOME AND DEDUCTIONS
Allowance for equity funds used during
construction 2,846 1,073 539
Deferred Wolf Creek carrying
costs (Note 1) - - 791
Miscellaneous (2,486) 2,595 (3,829)
Income taxes (Note 3) 1,549 (505) 1,593
Total 1,909 3,163 (906)
INCOME BEFORE INTEREST CHARGES 158,211 143,737 170,402
INTEREST CHARGES
Long-term debt 50,118 54,266 63,057
Short-term notes 750 2,749 3,299
Miscellaneous 4,113 2,173 2,665
Allowance for borrowed funds used during
construction (2,542) (1,785) (2,512)
Total 52,439 57,403 66,509
YEARLY RESULTS
Net income 105,772 86,334 103,893
Preferred stock dividend requirements 3,153 3,062 6,023
Earnings available for common stock $ 102,619 $ 83,272 $ 97,870
Average number of common shares
outstanding 61,908,726 61,908,726 61,908,726
Earnings per common share $ 1.66 $ 1.35 $ 1.58
Cash dividends per common share $ 1.46 $ 1.43 $ 1.37
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
1993 1992 1991
(Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 105,772 $ 86,334 $ 103,893
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 91,110 88,768 86,795
Amortization of:
Nuclear Fuel 8,705 9,583 6,199
Deferred Wolf Creek costs 13,102 13,102 10,943
MPSC rate phase-in plan amortization 7,072 7,072 7,072
Other amortizations 8,234 5,921 5,147
Deferred income taxes (net) 25,502 23,979 28,064
Investment tax credit (net) (4,345) (4,521) (7,009)
Allowance for equity funds used during
construction (2,846) (1,073) (539)
Cash flows affected by changes in:
Receivables (10,245) 2,848 13,636
Fuel inventories 6,075 (859) 137
Materials and supplies 1,106 654 (98)
Accounts payable (17,741) 4,838 2,861
Accrued taxes 7,936 2,404 2,995
Accrued interest 2,626 488 (1,244)
Wolf Creek refueling outage accrual (5,338) 12,600 -
Settlement of fuel contracts - - (8,578)
Other operating activities 6,419 1,599 2,175
Net cash provided by operating
activities 243,144 253,737 252,449
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (129,199) (129,559) (122,447)
Allowance for borrowed funds used during
construction (2,542) (1,785) (2,512)
Other investing activities 306 (4,589) (5,404)
Net cash used in investing activities (131,435) (135,933) (130,363)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 324,846 134,750 135,250
Issuance of preferred stock - 50,000 -
Retirement of long-term debt (271,480) (143,230) (163,215)
Retirement of preferred stock - (13,000) (40,000)
Special deposit for the retirement of
debt (60,118) - -
Premium on reacquired stock and long-term
debt (4,077) (2,321) (5,516)
Increase (decrease) in short-term
borrowings (4,000) (53,000) 42,500
Dividends declared (93,556) (91,277) (90,232)
Other financing activities (1,913) 274 (879)
Net cash used in financing activities (110,298) (117,804) (122,092)
Net increase (decrease) in cash 1,411 - (6)
Cash at beginning of year 128 128 134
Cash at end of year $ 1,539 $ 128 $ 128
Cash paid during the year for:
Interest (net of amount capitalized) $ 47,361 $ 55,223 $ 66,290
Income taxes $ 40,141 $ 32,995 $ 37,117
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
1993 1992
CUMMULATIVE PREFERRED STOCK (Note 7) (in 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
3.04%* - 500,000 shares issued 50,000 50,000
Total $ 89,000 $ 89,000
CUMMULATIVE PREFERRED STOCK (REDEEMABLE) (Note 7)
$100 Par
4.00% - 17,557 and 19,157 shares issued $ 1,756 $ 1,916
LONG-TERM DEBT (EXCLUDING CURRENT MATURITIES) (Note 8)
First Mortgage Bonds
7.33% weighted average rate, amounts redeemed
in 1993 $ - $ 244,980
9.46% series due 1994 - 60,000
5 7/8% series due 2007 21,940 21,940
Secured by General Mortgage Bonds
Medium-Term Notes due 1994-2008, 6.78% and 7.29%
weighted average rate at December 31 378,750 220,000
3.34%* Environmental Improvement Revenue
Refunding Bonds due 2012-23 122,846 31,000
Guaranty of Pollution Control Bonds
5 3/4% series due 2003 13,742 13,980
3.15%* due 2015-17 196,500 196,500
Unamortized Premium and Discount (net) (114) (191)
Total $ 733,664 $ 788,209
* Variable rate securities, weighted average rate as of December 31, 1993
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year ended December 31
1993 1992 1991
(in thousands)
Beginning Balance $ 405,985 $ 411,161 $ 399,294
Net Income 105,772 86,334 103,893
511,757 497,495 503,187
Premium on Reacquired Preferred Stock - 233 1,794
Dividends Declared:
Preferred Stock, at required rates 3,169 2,747 5,417
Common Stock - $1.46, $1.43 and $1.37
per share 90,387 88,530 84,815
Ending Balance (Note 7) $ 418,201 $ 405,985 $ 411,161
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
System of Accounts
The accounting records of Kansas City Power & Light Company (the
Company)are maintained in accordance with the Uniform System of Accounts
prescribed by the Federal Energy Regulatory Commission (FERC) and generally
accepted accounting principles.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and KLT Inc., a wholly-owned subsidiary. Intercompany balances and
transactions have been eliminated. Because KLT Inc. is not an electric
utility, its revenues and expenses have been classified under Other Income
and Deductions in the Consolidated Statements of Income.
KLT Inc. was formed in 1992 as a holding company for various non-regulated
business opportunities. The Company's equity investment in KLT Inc. was
$4.5 million and $1.5 million as of December 31, 1993 and 1992,
respectively.
Utility Plant
Utility plant is stated at historical costs of construction. These costs
include taxes, payroll-related costs, including pensions and other fringe
benefits, and an allowance for funds used during construction.
Allowance for Funds Used During Construction (AFDC)
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 8.3% for 1993, 6.6% for 1992 and 7.7% for 1991.
Depreciation and Maintenance
Depreciation is computed on a straight-line basis for jurisdictional
property based on depreciation rates approved by the Missouri Public Service
Commission (MPSC) and the Kansas Corporation Commission (KCC). Annual
composite rates were approximately 2.9% during the last three years.
Costs of improvements to units of property are charged to the utility
plant accounts. Property units retired or otherwise disposed are charged to
accumulated depreciation, along with removal costs, net of salvage.
Repairs of property and replacements of items determined not to be units of
property are expensed as incurred.
Nuclear Plant Decommissioning Costs
In 1986, the MPSC estimated the cost of decommissioning the Wolf Creek
Generating Station (Wolf Creek) to be $103 million in 1985 dollars. In
1989, the KCC estimated the cost to be $206 million in 1988 dollars. Then,
in 1992, the MPSC increased its estimate to $347 million in 1990 dollars.
In accordance with MPSC and KCC requirements, the jurisdictional portions of
the Company's 47% share of these costs (current level of $3.2 million,
annually) are being recovered and charged to other operation expenses over
the life of the plant and placed in an external trust fund to be used only
for the physical decommissioning of Wolf Creek (immediate dismantlement
method) which is not expected to occur prior to 2025. A study was filed
with the KCC and MPSC during 1993 estimating the projected decommissioning
costs to be $370 million in 1993 dollars. Based on this study, it is
expected that the MPSC will determine that no increase in the current level
of the Missouri jurisdictional funding and expenses will be necessary. A
hearing before the KCC is expected during 1994.
The investment in the trust fund, including reinvested earnings, was $14.3
million and $10.6 million at December 31, 1993 and 1992, 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.
Nuclear Fuel
The cost of 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 permanent disposal services.
Disposal costs are charged to fuel expense and recovered through rates.
These disposal services may not be available prior to 2013 although an
interim facility may be available earlier. 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.
The Company believes additional temporary storage space can be constructed
or obtained, as necessary.
Regulatory Assets
Certain costs are recorded as regulatory assets when a rate order allows
the deferral and inclusion of the amortization in rates or when it is
probable, based on historical regulatory precedent, that future rates
established by the regulators will recover amortization of the costs. If
subsequent recovery is not permitted, any unamortized balance, net of tax,
would reduce net income.
Deferred Wolf Creek Costs
Orders from the KCC and MPSC provided for continued construction
accounting for ratemaking purposes after the September 3, 1985
commercial in-service date of Wolf Creek through September 30, 1985 and
May 5, 1986, respectively. The deferral of certain other carrying
costs was also authorized. These deferrals are being amortized and
recovered in rates over an approximate 10 year period ending in 1996.
Recoverable Taxes
See Income Taxes below for discussion.
Settlement Of Fuel Contracts
The Company has deferred the cost incurred to terminate certain coal
purchase contracts. These costs are being amortized through the year
2002.
KCC Wolf Creek Carrying Costs
As ordered by the KCC, the Company deferred certain carrying costs
through June 1991. The recovery and corresponding amortization of this
deferral over six years began in July 1991.
MPSC Rate Phase-In Plan
MPSC's 1986 Wolf Creek rate phase-in plan resulted in the deferral of
a cash recovery of a portion of the cost of equity and the carrying
costs on the deferral. Recovery of these deferrals was completed
December 31, 1993.
Effective January 1, 1994, the MPSC approved a 2.66% rate reduction
(approximately $12.5 million annually) for the Company's Missouri
retail customers primarily to reflect the completion of this
amortization. The reduction will be spread evenly over the Missouri
retail customer classes. This agreement with the MPSC and public
counsel also includes a provision whereby none of the parties can 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 from 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 2017.
Fair Value of Financial Instruments
The stated values of the Company's financial instruments as of December
31, 1993 and 1992 approximated the fair market values based on quoted market
prices for the securities or for similar types of securities. If quotes
were not available, the Company's incremental borrowing rate for similar
types of debt was used.
Revenue Recognition
The Company utilizes cycle billing and accrues an estimated amount for
unbilled revenue at the end of each reporting period.
Income Taxes
The Company has adopted Financial Accounting Standards Board (FASB)
Statement No. 109, Accounting for Income Taxes. This statement is not
materially different from FASB Statement No. 96, which the Company adopted
in 1988. As a result, the Company establishes deferred tax liabilities and
assets, as appropriate, 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 must be determined
using the tax rates scheduled by the tax law to be in effect when the
temporary differences reverse.
The 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 the 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 has calculated its
deferred tax assets and liabilities pursuant to FASB 109, operating income
taxes were 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 have been deferred when utilized and are amortized
to income over the remaining service lives of the related properties.
Accrued Refueling Outage Costs - Change In Accounting Principle
Effective January 1992, the Company changed its method of accounting for
incremental costs to be incurred during scheduled Wolf Creek refueling
outages. Instead of expensing these costs as incurred, the Company is
accruing forecasted outage costs evenly (monthly) over the unit's operating
cycle which normally lasts approximately 18 months. The Company believes
this method of accounting produces a more meaningful presentation of yearly
results of operations than the prior method. Since the accrual began in
January 1992, when Wolf Creek returned on-line from a refueling outage,
there was no cumulative effect for the change in accounting principle. The
pro forma effects for the year ended December 31, 1991 were not material but
would have increased net income by $3.2 million ($0.05 per share). Because
there was no refueling outage in 1992, the effect of this change decreased
1992 net income by $7.8 million ($0.13 per share).
Environmental Matters
The Company's policy is to accrue environmental and cleanup costs when it
is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. The Company believes it has
appropriately recorded all such costs related to environmental matters.
Reclassifications
Certain reclassifications have been made to previously issued financial
statements in order to conform with the 1993 presentation.
2. PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Pension Plans
The Company has defined benefit pension plans for all its regular
employees, including officers, providing for benefits upon retirement,
normally at age 65. In accordance with the Employee Retirement Income
Security Act of 1974 (ERISA), the Company has satisfied at least its minimum
funding requirements. Benefits under these plans reflect the employee's
compensation, years of service and age at retirement.
Provisions for pensions are determined under the rules prescribed by FASB
Statement No. 87-Employers' Accounting for Pensions. The following is the
funded status of the plans:
December 31
1993 1992
(thousands)
Accumulated Benefit Obligation:
Vested $209,193 $173,021
Non-vested 6,296 6,126
Total $215,489 $179,147
Determination of Plan Assets
less Obligations:
Fair value of plan assets (a) $315,179 $272,001
Projected benefit obligation (b) 279,525 241,902
Difference $ 35,654 $ 30,099
Reconciliation of Difference:
Contributions to trusts
Prepaid $ 10,677 $ 8,759
Accrued liability (6,304) (4,881)
Unamortized transition amount 16,756 18,828
Unrecognized net gain 18,197 11,494
Unrecognized prior service cost (3,672) (4,101)
Difference $ 35,654 $ 30,099
(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 7% in 1993 and 8% in 1992; and increases in
future salary levels of 4% to 5% in 1993 and 5% to 6% in 1992.
Components of provisions for pensions (in thousands):
1993 1992 1991
Service cost $ 8,671 $ 7,301 $ 6,162
Interest cost on projected benefit
obligation 19,521 17,903 16,617
Actual return on plan assets (49,875) (24,541) (45,542)
Other 27,715 3,653 27,026
Net periodic pension cost $ 6,032 $ 4,316 $ 4,263
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, the Company provides certain
postretirement health care and life insurance benefits for substantially all
retired employees.
During the first quarter of 1993 the Company adopted FASB Statement No.
106-Employers' Accounting for Postretirement Benefits Other Than Pensions.
FASB 106 requires companies to accrue the cost of postretirement health care
and life insurance benefits during an employee's active years of service.
Previously, the Company expensed these costs as paid (pay-as-you-go). The
Company currently recovers these costs through rates on a pay-as-you-go
basis. As of December 31, 1992, the transition obligation under FASB 106
was approximately $23.5 million, with amortization over 20 years beginning
in 1993.
Net periodic postretirement benefit cost (in thousands):
1993
Service cost for benefits earned
during the year $ 616
Interest cost on the accumulated
postretirement benefit obligation (APBO) 1,893
Amortization of unrecognized
transition obligation 1,175
Net periodic postretirement cost 3,684
Less: Pay-as-you-go costs 1,109
Net increase in cost due to FASB 106 $ 2,575
The increase in the annual health care cost trend rate for 1994 is assumed
to be 13%, decreasing gradually over a seven year period to its ultimate
level of 6%. The Company's 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%
in each year would only increase the APBO as of December 31, 1993 by
approximately $786,000 and the aggregate service and interest cost
components of net periodic postretirement benefit cost for 1993 by
approximately $98,000.
Reconciliation of the status of postretirement benefit plans to amounts
recorded in the Consolidated Balance Sheets (in thousands):
1993
APBO:
Retirees $(10,672)
Fully eligible active plan participants (6,405)
Other active plan participants (10,501)
Unfunded APBO (27,578)
Unrecognized loss 2,689
Unrecognized transition obligation 22,314
Accrued postretirement benefit obligation
(included in Deferred Credits
and Other Liabilities - Other) $ (2,575)
The weighted average discount rate of 7% and future salary level increases
of 4% were used to determine the APBO.
Long-Term Incentive Plan
In 1992, the shareholders adopted a 10 year, Long-Term Incentive Plan for
officers and key employees. Awards issued under the Plan cannot exceed
three million common stock shares. During 1993 and 1992, awards to purchase
63,125 and 86,000 shares of common stock were granted with exercise prices
of $23.875 and $21.625 per share, respectively. During 1993, awards to
purchase 4,000 shares were canceled. Under granted stock options,
recipients are entitled to receive accumulated dividends as though
reinvested if the options are exercised and if the market price at the time
of exercise equals or exceeds the grant price. Under the assumption that
all shares will eventually be exercised, the Company expensed $0.1 million
and $0.2 million in 1993 and 1992, respectively, representing accumulated
dividends and the change in stock price since the date of grant. At
December 31, 1993, options for 145,125 shares of common stock were
outstanding and options for 41,000 shares were exercisable.
3. INCOME TAXES
Income tax expense as shown in the Consolidated Statements of Income
consists of the following:
1993 1992 1991
(thousands)
Current income taxes:
Federal $ 41,207 $ 28,081 $ 33,667
State 5,589 4,657 5,556
Total 46,796 32,738 39,223
Deferred income taxes, net:
Federal 22,274 20,488 23,696
State 3,228 3,491 4,368
Total 25,502 23,979 28,064
Investment tax credit, net (4,345) (4,521) (7,009)
Total income tax expense $ 67,953 $ 52,196 $ 60,278
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.
1993 1992 1991
Federal statutory income tax rate 35.0 % 34.0 % 34.0 %
Differences between book and tax
depreciation not normalized 1.3 1.7 1.8
Amortization of investment tax
credit (2.5) (3.3) (4.3)
State income taxes 3.3 3.9 4.0
Other 2.0 1.4 1.2
Effective income tax rate 39.1 % 37.7 % 36.7 %
The significant temporary differences resulting in deferred tax assets
and liabilities in the Consolidated Balance Sheets are as follows:
December 31
1993 1992
(thousands)
Depreciation differences $ 476,637 $ 449,701
Recoverable taxes 122,000 94,000
Other 25,534 26,968
Net deferred income tax liability $ 624,171 $ 570,669
The net deferred income tax liability consists of the following:
December 31
1993 1992
(thousands)
Gross deferred income tax assets $ (63,187) $ (64,746)
Gross deferred income tax liabilities 687,358 635,415
Net deferred income tax liability $ 624,171 $ 570,669
4. COMMITMENTS AND CONTINGENCIES
Nuclear Liability and Insurance
The Price-Anderson Act currently limits the public liability of nuclear
reactor owners to $9.4 billion, including attorney costs, for claims that
could arise from a nuclear incident. Accordingly, the Company and the other
owners of Wolf Creek have liability insurance coverage of this amount which
consists of the maximum available commercial insurance of $200 million and
Secondary Financial Protection (SFP). SFP coverage is funded by a mandatory
program of deferred premiums assessed against all owners of licensed
reactors for any nuclear incident anywhere in the country. The maximum
assessment per reactor is $79.3 million ($37.3 million, Company's share) per
incident. The owners of Wolf Creek 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.
The owners of Wolf Creek also have $2.8 billion of property damage,
decontamination and decommissioning insurance for loss resulting from damage
to the Wolf Creek facilities. Nuclear insurance pools provide $1.3 billion
of coverage, while Nuclear Electric Insurance Limited (NEIL) provides $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),
premature decommissioning costs up to $117.5 million (Company's share) in
excess of funds previously collected for decommissioning (as discussed in
Note 1) with the remaining $47 million (Company's share) available for
either property damage or premature decommissioning costs.
The owners of Wolf Creek have also procured extra expense insurance from
NEIL. Under both the NEIL property and extra expense policies, the Company
is subject to retroactive assessment if NEIL losses, with respect to each
policy year, exceed the accumulated funds available to the insurer under
that policy. The estimated maximum retroactive assessments for the
Company's share under the policies total approximately $9 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 damages 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
the Company's financial condition and results of operations.
Nuclear Fuel Commitments
At December 31, 1993, Wolf Creek's nuclear fuel commitments (Company's
share) were approximately $16 million for uranium concentrates through 1997,
$126 million for enrichment through 2014 and $46 million for fabrication
through 2014.
Tax Matters
The Company's federal income tax returns for the years 1985 through 1990
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 $190 million. These amounts
include the continuing effect of the adjustments through December 31, 1993.
These adjustments, principally, are based upon the IRS's contention that
(i) certain start-up and testing costs considered by the Company 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, 1993, of approximately $95 million for additional federal and
state income taxes and $50 million for corresponding interest. After
offsets for deferred income taxes, these payments would reduce net income by
approximately $30 million.
The Company has filed a protest with the appeals division of the IRS.
Based upon their interpretation of applicable tax principles and the tax
treatment of similar costs and facilities with respect to other plants, 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, together with interest, resulting from the final
resolution of these matters 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 the Company's 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 from the Company 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 the plant was demolished in
1952. The site and all other properties the Company owned in Iowa were sold
to Interstate in 1957. The Company estimates that the cleanup could cost up
to $10 million. The Company's estimate is based upon an evaluation of
available information from on-going site investigation and assessment
activities, including the costs of such activities.
In August 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. The EPA has also proposed to list the site on
the National Priorities List.
The Company believes it has several valid defenses to this action
including the fact that the 1957 sales documents included clauses which
require Interstate to indemnify the Company from and against all claims and
damages arising after the sale. However, the Court in an October 1993 order
rejected this position, ruling that the indemnity clauses were not
sufficiently broad to indemnify for environmental cleanup. This order will
be final for appeal after a trial to allocate the cleanup costs among the
parties, which is expected in 1994. Even if unsuccessful on the liability
issue, the Company does not believe its allocated share of the cleanup costs
will be material to its financial condition or results of operations.
Other Agreements
Under long-term contractual arrangements, the Company's share of purchased
coal totaled approximately $17 million in 1993 and $21 million in 1992 and
1991. The Company's share of purchase commitments in 1993 dollars under the
remaining terms of the coal contracts is approximately $110 million. The
Company also purchases coal on the spot market.
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 $1.9
million per year and approximately $60 million over the remaining life of
the lease if the lease is not canceled.
Under other leases, the Company incurred rental expense during the last
three years of approximately $15 million to $19 million per year. Rental
commitments under these leases for railroad cars, computer equipment,
buildings, a transmission line and similar items are approximately $114
million over the remaining life of the leases with payments during each of
the next five years ranging from a high of $17 million in 1994 to $8 million
in 1998. Capital leases are not material to the Company and are included in
the amounts discussed above.
The Company has contracted to purchase capacity from other utilities
through 2009. The obligations are as follows (cost in millions):
Cost Megawatts (mw)
1994 $12.4 470
1995 15.1 450
1996 19.4 500
1997 22.8 500
1998 22.8 500
1999 22.8 500
2000 16.6 150
Thereafter -
annual amounts through 2009 10.4 150
5. SALE OF ACCOUNTS RECEIVABLE
In 1989, the Company entered into an agreement with a financial
institution to sell, with limited recourse, an undivided interest in
designated accounts receivable. Accounts receivable sold under this
agreement totaled $60 million as of December 31, 1993, 1992 and 1991. Costs
associated with the sale of customer accounts receivable of $2.2 million,
$2.6 million and $3.5 million for 1993, 1992 and 1991, respectively, are
included in Other Income and Deductions-Miscellaneous.
6. SHORT-TERM BORROWINGS
The Company borrows short-term funds from banks and through the sale of
commercial paper as needed. Under minimal fee arrangements, the Company has
confirmed bank lines of credit totaling $153 million, of which $149 million
remains available at December 31, 1993.
7. COMMON STOCK EQUITY, PREFERRED STOCK AND REDEEMABLE PREFERRED STOCK
Retained earnings at December 31, 1993 included $16 million which was not
available for cash dividends on common stock under the provisions of the
Indenture of Mortgage securing First Mortgage Bonds.
During 1991, the Company reacquired and retired the 800,000 shares of the
$2.33 and 800,000 shares of the $2.20 Cumulative No Par Preferred Stock with
a combined stated value of $40 million. This transaction included a $4.7
million premium of which $2.9 million was charged against capital stock
premium and expense and $1.8 million was charged against retained earnings.
In February 1992, the Company redeemed and retired the 130,000 shares of
the 7.72% Cumulative Preferred Stock with a par value of $13 million. The
cost of redeeming this stock included a premium of $0.3 million which was
charged against retained earnings.
In April 1992, the Company issued $50 million, Cumulative No Par Preferred
Stock, Auction Series A, stated value of $100 per share. The $0.9 million
in costs associated with this issue were charged to capital stock premium
and expense.
The issued cumulative preferred stock of $91 million may be redeemed at
the option of the Company at prices which, in the aggregate, total $91
million.
Scheduled mandatory sinking fund requirements for the outstanding
redeemable 4% Cumulative Preferred Stock are $160,000 per year.
At December 31, 1993, the Company had authorized 407,557 shares of
Cumulative Preferred Stock at a par value of $100 per share, 1,572,000
shares of Cumulative No Par Preferred Stock and 11,000,000 shares of
Preference Stock without par value.
If any dividends on its preferred stock are not declared and paid when
scheduled, the Company could not declare or pay dividends on its common
stock or acquire any shares in consideration thereof. If the amount of any
such unpaid dividends equals four or more full quarterly dividends, the
holders of preferred stock, voting as a single class, could elect
representatives to the Company's Board of Directors.
On January 3, 1994, the Company registered 2,000,000 shares of its common
stock with the Securities and Exchange Commission for a Dividend
Reinvestment and Stock Purchase Plan (the "Plan"). Under the Plan, common
shareholders and employees and directors of the Company and its subsidiaries
have the opportunity to purchase shares of the Company's common stock by
reinvesting dividends and/or making optional cash payments. Rather than
issuing new shares, the Company intends to purchase the shares for the Plan
on the open market.
8. LONG-TERM DEBT
First Mortgage Bonds
The Company cannot issue additional First Mortgage Bonds authorized by the
Indenture of Mortgage and Deed of Trust dated as of December 1, 1946, as
supplemented, as long as any of the General Mortgage Bonds (discussed below)
are outstanding. Substantially all of the Company's utility plant is
pledged under the terms of the Indenture.
At December 31, 1993, $60 million was held as a special deposit and used
on January 5, 1994 to redeem the maturing $60 million First Mortgage Bonds.
General Mortgage Bonds
The Company is authorized to issue General Mortgage Bonds under the
General Mortgage Indenture and Deed of Trust dated December 1, 1986, as
supplemented. The amount of additional bonds which may be issued is subject
to certain restrictive provisions of the General Mortgage Indenture. The
General Mortgage Indenture constitutes a mortgage lien on substantially all
of the Company's utility plant and is junior to the lien of the First
Mortgage. Upon retirement and/or maturity of the remaining outstanding
First Mortgage Bonds, the General Mortgage Bonds will become first mortgage
bonds.
The Company pledged General Mortgage Bonds in the amount of $531 million
to secure the outstanding $453 million (including $74 million classified as
current maturities of long-term debt) and the unissued $78 million of
Medium-Term Notes as of December 31, 1993.
Scheduled Maturities
The amount of long-term debt maturing in each of the next five years is as
follows (in millions): 1994 - $134.5; 1995 - $30.0; 1996 - $47.3; 1997 -
$0.8; and 1998 - $61.9.
9. JOINTLY-OWNED ELECTRIC UTILITY PLANTS
The Company has joint ownership agreements with other utilities providing
undivided interests in utility plants at December 31, 1993 as follows (in
millions of dollars):
Wolf Creek La Cygne Iatan
Unit Units Unit
Company's share 47% 50% 70%
Utility plant in service $ 1,326 $ 282 $ 247
Estimated accumulated depreciation
(Production plant only) $ 270 $ 150 $ 111
Nuclear fuel, net $ 30 - -
Company's accredited capacity-mw 532 678 469
Each participant must provide its own financing. 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)
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
1992
Operating revenues $180,022 $196,505 $229,425 $ 196,716
Operating income $ 23,795 $ 34,351 $ 50,638 $ 31,790
Net income $ 8,321 $ 21,335 $ 38,044 $ 18,634
Earnings per common share $ 0.12 $ 0.33 $ 0.60 $ 0.29
The business of the Company is subject to seasonal fluctuations with peak
periods occurring during summer months. See Management's Discussion and
Analysis of Financial Condition and Results of Operations for discussion of
items affecting quarterly results.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Kansas City Power & Light Company:
We have audited the accompanying consolidated balance sheets and
statements of cumulative preferred stock and long-term debt of
Kansas City Power & Light Company as of December 31, 1993 and
1992, and the related consolidated statements of income, retained
earnings, and cash flows for each of the three years in the
period ended December 31, 1993. 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Kansas City Power & Light Company as of December 31,
1993 and 1992, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for incremental
nuclear refueling outage costs in 1992.
COOPERS & LYBRAND
Kansas City, Missouri
January 28, 1994
KANSAS CITY POWER & LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
KILOWATT (KWH) SALES AND OPERATING REVENUES
Sales and revenue data:
Increase (Decrease)
From Prior Year
1993 1992
KWH Revenues KWH Revenues
(Millions) (Millions)
Retail sales:
Residential 13 % $ 30 (12)% $ (33)
Commercial 3 % 9 (2)% (4)
Industrial 3 % 3 6 % 3
Other 1 % - 1 % -
Total retail 6 % 42 (4)% (34)
Sales for resale:
Bulk power sales 27 % 13 51 % 12
Other 5 % - (6)% -
Total operating revenues $ 55 $ (22)
Although 1993 temperatures have been milder than normal, residential and
commercial sales reflect closer to normal temperatures during 1993 compared
to the abnormally mild weather of 1992 and warmer than normal weather of
1991. Based on the Company's records of cooling degree days above 65
degrees Fahrenheit, the summer of 1992 was the coolest since 1950. The
weather conditions were the primary cause for the variances in residential
and commercial sales although both 1993 and 1992 also reflect load growth.
Industrial kwh sales continued to increase over prior years and reflect
increased large customer usage in the steel, auto manufacturing, grain
processing and plastic container production sectors.
Bulk power sales reflect an increase in the number of sales commitments,
the Company's high unit and fuel availability, and the requirements of other
electric systems.
Changes in total revenue per kwh are due to changes in the mix of kwh
sales among customer classifications and the effect on certain
classifications of declining price per kwh as kwh usage increases. Less
than 1% of the Company's revenues are affected by an automatic fuel
adjustment provision.
Tariffs have not changed materially since 1988. Effective January 1,
1994, Missouri jurisdictional retail rates were reduced 2.66%, or
approximately $12.5 million annually, primarily to reflect the end of the
Missouri Public Service Commission (MPSC) rate phase-in amortization. This
agreement with the MPSC and public counsel also includes a provision whereby
none of the parties can 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 from Missouri customers.
The level of future kwh sales will depend upon weather conditions,
customer conservation efforts, competing fuel sources and the overall
economy of the Company's service territory. Sales to industrial customers,
such as steel and auto manufacturers, are also affected by the national
economy. The level of bulk power sales in the future
will depend upon the availability of generating units, fuel costs,
requirements of other electric systems and the Company's system
requirements.
Also, issues facing the electric utility industry such as transmission
access, demand-side management programs, increased competition and retention
of large industrial customers could affect sales. Alternative sources of
electricity, such as cogeneration, could affect the retention of, and future
sales to large industrial customers.
COMPETITION
The National Energy Policy Act of 1992 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 and other utilities. Amendments to the Public Utility Holding
Company Act simplified the organization of exempt wholesale generators, who
engage exclusively in generating electricity for wholesale markets.
Although the Act 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), the Act
itself does not prevent the state commissions from doing so. The state
commissions however, may be preempted by other provisions of the Federal
Power Act. If retail wheeling were allowed, utilities with large industrial
customers could face intense competition and potentially lose a major
customer which could place an unfair, costly burden on the remaining
customer base or shareholders.
The Company continues to evaluate the effects of competition on its
operations and position itself for a more competitive marketplace. It has
been participating in wholesale wheeling voluntarily and has tariffs in
place to accommodate these activities. The Company has a diverse customer
mix with less than 18% of total sales derived from industrial customers as
compared to a utility average of approximately 35%. The Company's
industrial rates are competitively priced compared to the regional average
and its rate structure allows some flexibility in setting rates. In
addition, Company sponsored programs help customers manage their electricity
consumption, and control their costs.
FUEL, PURCHASED POWER, OTHER OPERATION AND MAINTENANCE EXPENSES
Wolf Creek completed its sixth scheduled refueling outage during 1993 and
returned on-line after 73 days. The Company began accruing for this outage
in January 1992 (see Note 1 to the Consolidated Financial Statements for a
discussion of the 1992 change in accounting principle). The prior refueling
outage began in 1991, before the Company started accruing for these costs,
and extended into January 1992. Because these costs, as well as a forced
outage in 1992, had not been accrued, all expenses associated with these
outages were expensed as incurred. As a result, 1992 expenses associated
with Wolf Creek outages (including amounts accrued beginning in January
1992) exceeded amounts expensed in 1993 by $5.6 million ($0.06 per share)
and 1992 expenses were less than 1991 expenses by $4.6 million ($0.05 per
share). The next refueling outage is scheduled to begin in September 1994.
Combined fuel and purchased power expenses for 1993 increased over 1992
and 1991 reflecting additional sales. Partially offsetting these increases,
fuel prices and freight rates have gradually decreased since 1991.
Other operation expenses increased during 1993 and 1992 reflecting
increased generating plant production expenses and higher levels of
administrative and general expenses mostly due to increased wages and
employee benefits, and the 1993 accrual of postretirement benefits (see Note
2 to the Consolidated Financial Statements).
The Company continues to place emphasis on cost control. Processes are
being reviewed and changed to provide increased efficiencies and improved
operations.
INCOME TAXES
The change in income tax expense is mostly due to the changes in income
subject to tax, but 1993 also reflects an increase of approximately $2
million in federal income tax expense because federal income tax rates
increased.
GENERAL TAXES
Components of general taxes (in thousands):
1993 1992 1991
Property taxes $ 45,545 $ 44,300 $ 38,803
Gross receipts taxes 40,659 39,232 41,223
Other general taxes 9,455 8,929 8,499
Total general taxes $ 95,659 $ 92,461 $ 88,525
Increases in property taxes since 1991 are primarily due to the Kansas
school finance legislation. The Company estimates the effects of this
legislation will increase future property taxes over 1993 levels by
approximately $1 million.
The majority of Missouri customers are billed gross receipts tax based on
billed revenues.
OTHER INCOME AND DEDUCTIONS
Miscellaneous and Income Taxes - 1992 reflects gains from the sale of
property and other contract settlements.
INTEREST CHARGES
Declines in long-term interest expense since 1991 reflect lower interest
rates on variable rate debt and the retirement, repayment or refinancing of
debt. The average interest rate paid on long-term debt including current
maturities declined to 6.0% in 1993 compared to 6.6% in 1992 and 7.5% in
1991.
Declines in short-term interest expense reflect the decreasing interest
rates since 1991 and a lower level of short-term debt outstanding during
1993. The average daily outstanding balance of short-term debt decreased to
$16 million in 1993 from $60 million in 1992 and $50 million in 1991.
PREFERRED STOCK DIVIDEND REQUIREMENTS
The 1992 decrease in the preferred stock dividend requirements compared to
1991 reflects the refinancing of higher rate preferred stock with variable
rate preferred stock.
EARNINGS PER SHARE (EPS)
EPS for 1993 increased $0.31 over 1992 and EPS for 1992 decreased $0.23
from 1991.
The effects of weather increased 1993 EPS by approximately $0.25 over 1992
and decreased 1992 EPS by approximately $0.46 from 1991. Temperatures in
1993 were milder than normal, but closer to normal compared to the extremely
mild weather in 1992 and warmer than normal weather of 1991. Based on a
statistical relationship between sales and the differences in actual and
normal temperatures for the year, the Company estimates the effects of
abnormal weather for the last three years were as follows:
1993 1992 1991
Estimated effects of
abnormal weather on EPS $ (0.10) $ (0.35) $ 0.11
In addition to the effects of abnormal weather on EPS, 1993 expenses
associated with Wolf Creek outages (including outage accruals which began in
January 1992) decreased from 1992 resulting in an increase in EPS of $0.06.
These same 1992 expenses decreased from 1991 causing an increase in 1992 EPS
of $0.05.
EPS for 1993 and 1992 reflect efforts of the Company to control costs
despite increases in production expenses and general and administrative
expenses. Also, since 1991, the Company has refinanced a significant
portion of its long-term debt and preferred stock to take advantage of lower
rates. EPS for 1992 also reflect gains from the sales of property and other
contract settlements.
PROJECTED CONSTRUCTION EXPENDITURES
Construction expenditures, excluding AFDC, were $129.2 million in 1993 and
are projected for the next five years as follows:
Construction Expenditures
1994 1995 1996 1997 1998 Total
(millions)
Generating facilities $ 52.8 $ 74.3 $ 67.4 $114.1 $148.3 $ 456.9
Nuclear fuel 19.3 20.7 8.1 21.0 25.7 94.8
Transmission facilities 11.1 10.6 8.5 8.7 8.8 47.7
Distribution and
general facilities 70.4 53.7 52.9 52.9 54.5 284.4
Total $153.6 $159.3 $136.9 $196.7 $237.3 $ 883.8
The Company's resource plan includes four new 146 megawatt (mw) gas-fired
combustion turbines scheduled to be completed from 1998 through 2000. In
addition, the plan envisions a new 705 mw (250 mw, Company's share) coal-
fired generating unit scheduled to begin construction in 1997 and be
completed by 2002. The projected construction expenditures include $200.2
million of forecasted costs for these projects during the next five years.
The Company's resource plan is subject to periodic review and modification.
The next integrated resource plan will be submitted to the MPSC in July
1994.
WOLF CREEK
Wolf Creek is one of the Company's principal generating facilities
representing approximately 17% of the Company's accredited generating
capacity and 26% of the Company's annual kwh generation during the last
three years, and has the lowest fuel cost of any of its generating
facilities. The plant operated at 80%, 85% and 59% of capacity for 1993,
1992 and 1991, respectively. 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 and the Company estimates the cost of nuclear fuel per
million BTU, after the next refueling in the fall of 1994, will increase
from approximately 35% to 40% of the cost of coal. Based on contract prices
and projected future spot market prices for nuclear fuel and coal, it is
anticipated that by 1996 the cost of nuclear fuel will increase in relation
to coal to be about one-half the cost of coal.
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 abnormal shut-down of the plant could be caused by
adverse incidents at the plant or 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 retroactive 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 possible 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 the Company's
operations or facilities.
See Note 4 to the Consolidated Financial Statements-Commitments and
Contingencies-Environmental Matters-for discussion of costs of compliance
with environmental laws and regulations and a potential liability (which the
Company 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. Based on the results of current studies,
the Company estimates total capital expenditures needed to comply with
existing and proposed acid rain program regulations will be $4.1 million for
the installation of continuous emission monitoring equipment. The Company
has spent $2.9 million as of December 31, 1993 and has included the
remaining $1.2 million in the five year projected construction expenditures.
Future acid rain program regulations may require the Company to make further
capital expenditures, but it is not possible to estimate those expenditures,
if any. 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. The Company cannot, at
this time, predict the likelihood of any such regulations or compliance
costs.
CAPITAL REQUIREMENTS AND LIQUIDITY
On January 3, 1994, Moody's Investors Service upgraded the credit rating
of the Company's bonds due to an 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 for the Company to raise funds
when needed and will contribute to the Company's continued efforts to meet
the challenge of increased competition in the utility industry.
The Company's capital structure at December 31, 1993 (including current
maturities of long-term debt less special deposit for retirement of debt)
consisted of 49.1% common stock equity, 5.1% preferred stock and 45.8% long-
term debt. The Company's goal is to maintain a capital structure in which
the percentages of common stock equity and long-term debt are approximately
equal.
The Company currently estimates that it will be able to meet a significant
portion of the projected construction expenditures with internally-generated
funds. It is anticipated that funds for maturing debt through 1998 totaling
$274.5 million will be provided from operations, refinancings or short-term
debt. As of December 31, 1993, the Company had $78 million of registered
but unissued Medium-Term Notes and $149 million of unused bank lines of
credit. Uncertainties which affect the degree to which these capital
requirements will be met with funds provided from operations include such
items as the effect of inflation on operating expenses, the level of kwh
sales, regulatory actions, compliance with future environmental regulations,
availability of the Company's generating units and the level of bulk power
sales with other utilities.
The Company currently uses an accelerated depreciation method for tax
purposes. The accelerated depreciation 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 ends in 1994.
See Note 4 to the Consolidated Financial Statements-Commitments and
Contingencies-Tax Matters-for discussion of the Company's federal income tax
returns for the years 1985 through 1990 which are presently under audit by
the Internal Revenue Service.
In order to take advantage of the potential benefits inherent in a larger
energy system, the Company might incur additional debt and/or issue
additional equity to finance system growth or new growth opportunities,
through business combinations or other investments such as an exempt
wholesale generator.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KANSAS CITY POWER & LIGHT COMPANY
/s/Samuel P. Cowley
(Samuel P. Cowley)
Senior Vice President-Corporate Affairs
and Chief Legal Officer
Date: February 11, 1994