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 June 30, 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 August 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 - 6
Statements of Cash Flows 7 - 8
Statements of Capitalization 9
Statements of Common Stock Equity 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Thousands of Dollars)
June 30, December 31,
1994 1993
(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . . $3,362,910 $3,339,832
Less - Accumulated depreciation . . . . . . . . . . . . . 829,511 790,843
2,533,399 2,548,989
Construction work in progress . . . . . . . . . . . . . . 34,597 28,436
Nuclear fuel (net) . . . . . . . . . . . . . . . . . . . 39,173 29,271
Net utility plant . . . . . . . . . . . . . . . . . . . 2,607,169 2,606,696
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust . . . . . . . . . . . . . . . . . . 15,077 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 11,957 10,941
27,034 24,145
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . 77 63
Accounts receivable and unbilled revenues (net) (Note 8). 57,323 11,112
Advances to parent company. . . . . . . . . . . . . . . . 115,578 192,792
Fossil fuel, at average cost, . . . . . . . . . . . . . . 13,073 7,594
Materials and supplies, at average cost . . . . . . . . . 31,379 29,933
Prepayments and other current assets. . . . . . . . . . . 25,963 14,995
243,393 256,489
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . . 115,280 113,479
Deferred coal contract settlement costs . . . . . . . . . 19,599 21,247
Phase-in revenues . . . . . . . . . . . . . . . . . . . . 70,178 78,950
Other deferred plant costs. . . . . . . . . . . . . . . . 31,896 32,008
Corporate-owned life insurance (net) . . . . . . . . . . 8,352 45
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 45,495 54,420
290,800 300,149
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,168,396 $3,187,479
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . . . $1,982,446 $1,899,221
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . . 25,200 155,800
Long-term debt due within one year. . . . . . . . . . . . - 238
Accounts payable. . . . . . . . . . . . . . . . . . . . . 60,103 51,095
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 24,933 12,185
Accrued interest. . . . . . . . . . . . . . . . . . . . . 8,303 7,381
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 9,721 9,427
128,260 236,126
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . . 638,072 646,159
Deferred investment tax credits . . . . . . . . . . . . . 76,444 78,048
Deferred gain from sale-leaseback . . . . . . . . . . . . 257,161 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 86,013 65,944
1,057,690 1,052,132
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $3,168,396 $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
June 30,
1994 1993
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . $ 154,987 $ 150,478
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . 23,096 20,788
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . 4,232 2,142
Power purchased . . . . . . . . . . . . . . . . . . . . 2,241 1,362
Other operations. . . . . . . . . . . . . . . . . . . . 27,954 35,171
Maintenance . . . . . . . . . . . . . . . . . . . . . . 13,890 11,101
Depreciation and amortization . . . . . . . . . . . . . 19,142 18,837
Amortization of phase-in revenues . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . 11,604 8,035
State income. . . . . . . . . . . . . . . . . . . . . 2,875 1,798
General . . . . . . . . . . . . . . . . . . . . . . . 12,019 11,313
Total operating expenses. . . . . . . . . . . . . . 121,439 114,933
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . 33,548 35,545
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . (758) 1,899
Miscellaneous (net) . . . . . . . . . . . . . . . . . . 1,950 1,242
Income taxes (net). . . . . . . . . . . . . . . . . . . 1,451 511
Total other income and deductions . . . . . . . . . 2,643 3,652
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . 36,191 39,197
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . 12,005 13,897
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,119 1,407
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . (556) (381)
Total interest charges. . . . . . . . . . . . . . . 12,568 14,923
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . $ 23,623 $ 24,274
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Six Months Ended
June 30,
1994 1993
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . $ 291,591 $ 288,959
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . 43,935 42,017
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . 8,095 4,849
Power purchased . . . . . . . . . . . . . . . . . . . . 3,493 3,369
Other operations. . . . . . . . . . . . . . . . . . . . 58,585 62,709
Maintenance . . . . . . . . . . . . . . . . . . . . . . 25,230 21,966
Depreciation and amortization . . . . . . . . . . . . . 38,261 37,675
Amortization of phase-in revenues . . . . . . . . . . . 8,772 8,772
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . 18,073 13,252
State income. . . . . . . . . . . . . . . . . . . . . 4,585 3,215
General . . . . . . . . . . . . . . . . . . . . . . . 24,136 22,816
Total operating expenses. . . . . . . . . . . . . . 233,165 220,640
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . 58,426 68,319
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . (1,993) 3,368
Miscellaneous (net) . . . . . . . . . . . . . . . . . . 2,808 7,518
Income taxes (net). . . . . . . . . . . . . . . . . . . 3,238 (1,043)
Total other income and deductions . . . . . . . . . 4,053 9,843
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . 62,479 78,162
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . 24,098 28,001
Other . . . . . . . . . . . . . . . . . . . . . . . . . 2,472 2,964
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . (924) (808)
Total interest charges. . . . . . . . . . . . . . . 25,646 30,157
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . $ 36,833 $ 48,005
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
June 30,
1994 1993
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . . $ 619,629 $ 583,842
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 95,306 78,707
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . . 16,521 12,808
Power purchased . . . . . . . . . . . . . . . . . . . . . . 9,988 5,975
Other operations. . . . . . . . . . . . . . . . . . . . . . 114,824 122,008
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . 50,004 46,673
Depreciation and amortization . . . . . . . . . . . . . . . 76,116 74,431
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . . 44,374 28,203
State income. . . . . . . . . . . . . . . . . . . . . . . 10,940 7,704
General . . . . . . . . . . . . . . . . . . . . . . . . . 46,523 42,647
Total operating expenses. . . . . . . . . . . . . . . . 482,141 436,700
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . 137,488 147,142
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . . 2,480 7,377
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . . 4,561 13,033
Income taxes (net). . . . . . . . . . . . . . . . . . . . . 6,508 (2,192)
Total other income and deductions . . . . . . . . . . . 13,549 18,218
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . . 151,037 165,360
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . 50,005 56,411
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,583 10,949
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . . (1,482) (1,520)
Total interest charges. . . . . . . . . . . . . . . . . 54,106 65,840
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,931 $ 99,520
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)
Six Months Ended
June 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 36,833 $ 48,005
Depreciation and amortization . . . . . . . . . . . . . . . 38,261 37,675
Other amortization (including nuclear fuel) . . . . . . . . 5,867 3,391
Deferred income taxes and investment tax credits (net). . . 4,319 5,495
Amortization of phase-in revenues . . . . . . . . . . . . . 8,772 8,772
Corporate-owned life insurance. . . . . . . . . . . . . . . (8,830) (8,101)
Amortization of gain from sale-leaseback. . . . . . . . . . (4,820) (4,820)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) (Note 8). (46,211) (12,142)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (5,479) 4,055
Accounts payable. . . . . . . . . . . . . . . . . . . . . 9,008 (4,067)
Interest and taxes accrued. . . . . . . . . . . . . . . . 13,670 4,323
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (12,120) (257)
Changes in other assets and liabilities . . . . . . . . . . (1,436) (21,326)
Net cash flows from operating activities . . . . . . . 37,834 61,003
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 47,306 22,513
Corporate-owned life insurance policies . . . . . . . . . . 24,008 24,624
Net cash flows used in investing activities. . . . . . 71,314 47,137
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (130,600) (7,300)
Advances to parent company (net). . . . . . . . . . . . . . 77,214 40,791
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 160,422 -
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (46,440) -
Other long-term debt (net). . . . . . . . . . . . . . . . . (67,893) (46,870)
Borrowings against life insurance policies (net). . . . . . 40,791 621
Net cash flows from (used in) financing activities . . 33,494 (12,758)
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . 14 1,108
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . . . . 63 892
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . $ 77 $ 2,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 43,809 $ 38,921
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 18,400 7,500
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
June 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 96,931 $ 99,520
Depreciation and amortization . . . . . . . . . . . . . . . 76,116 74,431
Other amortization (including nuclear fuel) . . . . . . . . 13,730 9,363
Deferred income taxes and investment tax credits (net). . . 21,396 10,046
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (22,379) (15,972)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,640) (9,640)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) (Note 8). (34,638) (10,635)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (1,027) 7,760
Accounts payable. . . . . . . . . . . . . . . . . . . . . 3,262 1,168
Interest and taxes accrued. . . . . . . . . . . . . . . . 294 2,477
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (14,054) (5,393)
Changes in other assets and liabilities . . . . . . . . . . 3,360 (61,142)
Net cash flows from operating activities. . . . . . . . . 150,896 119,527
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 91,679 63,713
Corporate-owned life insurance policies . . . . . . . . . . 26,650 20,632
Death proceeds of corporate-owned life insurance policies . (10,158) (754)
Net cash flows used in investing activities. . . . . 108,171 83,591
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (61,000) (3,800)
Advances to parent company (net). . . . . . . . . . . . . . (82,080) (28,025)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 225,422 135,000
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (186,440) (125,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . (13,980) (14,860)
Revolving credit agreement (net). . . . . . . . . . . . . . (150,000) -
Borrowings against life insurance policies (net). . . . . . 223,430 (3,959)
Net cash flows from (used in) financing activities . . (44,648) (40,644)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (1,923) (4,708)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . . . . 2,000 6,708
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . $ 77 $ 2,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 82,541 $ 76,659
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 40,254 21,725
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
June 30, 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. . . . . . . . . . . . . . . . . . . . . 216,877 180,044
Total common stock equity. . . . . . . . . . . . . . . . 1,282,511 65% 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
5-7/8% 2007 - 21,940
6% 2007 - 10,000
5.10% 2023 13,982 -
Variable (a) 2027 21,940 -
7% 2031 327,500 327,500
Variable (a) 2032 14,500 -
Variable (a) 2032 10,000 -
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) . . . . . . . . . 3,987 4,052
Long-term debt due within one year . . . . . . . . . . . - 238
Total long-term debt. . . . . . . . . . . . . . . . . 699,935 35% 653,543 34%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . $1,982,446 100% $1,899,221 100%
(a) Market-Adjusted Tax Exempt Securities (MATES). The interest rate is being reset
periodically via an auction process. As of June 30, 1994, the rate was 2.86% for these
bonds.
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 . . . . . . . . 36,833 36,833
BALANCE JUNE 30, 1994. . . . 1,000 $1,065,634 $ - $ 216,877 - $ - $1,282,511
(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 June 30, 1994, and December 31, 1993, and the results of its
operations for the three, six and twelve month periods ended June 30, 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):
June 30, December 31,
1994 1993
Cash surrender value of contracts $318.2 $269.0
Borrowings against contracts (309.8) (269.0)
COLI (net) $ 8.4 $ 0.0
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 June 30, 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.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit June 20, 1994, seeking an interpretation of the
DOE's obligation to begin accepting spent nuclear fuel for disposal in 1998.
The Federal Nuclear Waste Policy Act requires DOE ultimately to accept and
dispose of nuclear utilities' spent fuel. The issue to be decided in this
case is whether DOE must begin accepting spent fuel in 1998 or at a future
date.
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 is 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 $15.1 and $13.2 million at June 30, 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 balance sheets.
On June 9, 1994, the KCC issued an order approving the decommissioning
cost of a 1993 Wolf Creek Decommissioning Cost Study which estimates the
Company's share of Wolf Creek decommissioning costs to be approximately $595
million during the period 2025 through 2033 or approximately $174 million in
1993 dollars. These costs were calculated using an assumed inflation rate of
3.45% over the remaining service life, in 1993, of 32 years.
The KCC also scheduled a hearing to review the funding level for the
decommissioning trust. Management believes the current level of funding will
meet the requirements of the 1993 cost study and is requesting no change to
the current funding level.
The Company carries $164 million in premature decommissioning insurance.
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 $9.2 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. NOx 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 with 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 of the Notes to Financial Statements
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 of the Notes to Financial Statements 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 of the Notes to Financial Statements 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
35.5% and 27.7% for the three month periods, and 34.5% and 26.7% for the six
month periods and 33.5% and 27.7% for the twelve month periods ended June 30,
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 of the Notes to Financial Statements in the Company's 1993 Annual
Report on Form 10-K.
7. EMPLOYEE BENEFIT PLANS
Postemployment. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 112 (SFAS 112), in the first quarter of
1994. This statement requires the Company to recognize the liability to
provide postemployment benefits when the liability has been incurred. To
mitigate the impact adopting SFAS 112 will have on rate increases, the Company
received an order from the KCC permitting the initial deferral of SFAS 112
transition costs and expenses and its inclusion in the future computation of
cost of service net of and income stream generated from corporate-owned life
insurance. At June 30, 1994, the Company's SFAS 112 liability recorded on the
balance sheet was approximately $585,000.
8. LONG-TERM DEBT
The Company has a long-term debt agreement, expiring in 1995, which
contains provisions for the sale of accounts receivable and unbilled revenues
(receivables) and phase-in revenues up to a total of $180 million. Amounts
related to receivables are accounted for as sales while those related to
phase-in revenues are accounted for as collateralized borrowings. Additional
receivables are continually sold to replace those collected. At June 30, 1994
and December 31, 1993, outstanding receivables amounting to $20.1 million and
$56.8 million, respectively, were considered sold under the agreement.
For additional information with respect to Long-Term Debt see Note 6,
LONG-TERM DEBT of the Notes to Financial Statements 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, six and
twelve month periods ended June 30, 1994 and comparable periods of 1993.
FINANCIAL CONDITION
General. The Company had net income for the second quarter of 1994 of
$23.6 million compared to $24.3 million for the same period of 1993. The
decrease in income can be attributed to an increase in maintenance expense due
to the major boiler overhaul of the Company's coal fired La Cygne 1 and higher
income taxes as a result of the completion of the accelerated amortization of
certain deferred income tax reserves.
As of December 31, 1993, the Company had fully amortized these deferred
income tax reserves related to the allowance for borrowed funds used during
construction capitalized for Wolf Creek. The absence of the amortization of
these deferred income tax reserves reduces net income by approximately $3
million per quarter or approximately $12 million per year.
Net income for the six and twelve months ending June 30, 1994, of $36.8
million and $96.9 million, decreased from net income of $48.0 and $99.5
million for the comparable periods of 1993, respectively. The decrease in net
income is primarily due to increases in income taxes as a result of the
absence of the amortization of the above mentioned deferred income tax
reserves and higher maintenance expense as a result of the major boiler
overhaul of the Company's coal fired La Cygne 1.
Partially offsetting the increased expenses for the three, six and twelve
months ended June 30, 1994, was lower interest expense.
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.
On April 28, 1994, three series of Market-Adjusted Tax Exempt Securities
totalling $46.4 million were sold on behalf of the Company at a rate of 2.95%
for the initial auction period. The interest rate is being reset periodically
via an auction process. As of June 30, 1994, the rate on these bonds was
2.86% for each series. 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%.
In 1986 the Company purchased corporate-owned life insurance policies
(COLI) on certain of its employees. For the six months ended June 30, 1994,
the Company increased its borrowings against the accumulated cash surrender
values of the policies by $39.2 million and received $1.6 million from
increased borrowings on Wolf Creek Nuclear Operating Company policies.
OPERATING RESULTS
The following discussion explains variances for the three, six and twelve
months ended June 30, 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:
3 Months 6 Months 12 Months
Ended Ended Ended
Residential 15.6% 2.6% 4.9%
Commercial 0.0% 1.2% (0.5)%
Industrial 3.5% (1.1)% (1.1)%
Total Retail 5.8% 0.6% 0.8%
Wholesale & interchange (3.7)% 57.7% 66.4%
Total electric sales 4.4% 8.6% 11.0%
Revenues for the second quarter of 1994, of $155.0 million, increased
three percent from the 1993 second quarter revenues of $150.5 million, due to
the warmer temperatures experienced in the Company's service territory,
primarily in the month of June, which resulted in a greater customer demand
for air conditioning load compared to last year.
Revenues for the six months ended June 30, 1994, of $291.6 million,
increased slightly from revenues of $289.0 million for the comparable period
of 1993. The increase in revenues is primarily a result of increased
residential sales due to the higher air conditioning load during 1994 as
compared to 1993 and higher wholesale and interchange sales due to increased
interchange demand.
Revenues for the twelve months ended June 30, 1994, of $619.6 million,
increased approximately six percent from revenues of $583.8 million for the
comparable period of 1993. The increase can be attributed primarily to a
$22.6 million increase in wholesale and interchange revenues as a result of
additional interchange customers and other utilities' need for power to meet
peak demand periods while those utilities' units were down due to the 1993
summer flooding. Residential customers also experienced an increase in sales
volume as summer temperatures returned to near normal levels during the third
quarter of 1993.
Operating Expenses. Total operating expenses increased approximately six
percent for the three and the six months ended June 30, 1994 compared the same
periods of 1993. The increases can be attributed to increases during the
second quarter of $2.8 million in maintenance expense primarily due to the
major boiler overhaul of the Company's coal fired La Cygne 1, a $4.6 million
increase in federal and state income taxes, and a $4.4 million increase in
fuel expense as a result of increased electric generation to meet customer
demand.
The increase in federal income taxes for the three and six months ended
June 30, 1994 was due to the completion at December 31, 1993, of the
accelerated amortization of deferred income tax reserves relating to the
allowance for borrowed funds used during construction capitalized for Wolf
Creek. The completion of the amortization of these deferred income tax
reserves increased income taxes and thereby reduced net income by
approximately $3 million and $6 million for the quarter and six months ended
June 30, 1994, respectively.
Total operating expenses increased approximately 10 percent for the
twelve months ended June 30, 1994 compared to the same period of 1993. The
increase is primarily the result of a $24.3 million increase in fuel expense
and purchased power due to increased electric generation caused by the
increase in customer demand, a $19.4 million increase in federal and state
income taxes, and higher general taxes of $3.9 million. The increase in
income taxes is a result of the completion of the amortization of certain
deferred income taxes discussed previously. Higher property taxes due to
increases in plant and higher mill levies contributed to increased general
taxes.
Other Income and Deductions. Other income and deductions, net of taxes,
decreased significantly for the three, six and twelve months ended June 30,
1994, compared to the same period in 1993 primarily as a result of increased
interest expense on higher COLI borrowings.
Interest Expense. Interest expense decreased $2.4 million, $4.5 million
and $11.7 million for the three, six and twelve months ended June 30, 1994
compared to the same periods of 1993, respectively. The decreases 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 which reduce the need for
other long-term debt and thereby reduced interest expense. COLI interest is
reflected in Other Income and Deductions on the income statement.
KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
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 August 10, 1994 By Richard D. Terrill
Richard D. Terrill,
Secretary, Treasurer and
General Counsel
