SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) July 13, 1998
WESTERN RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)
KANSAS 1-3523 48-0290150
(State or Other Jurisdiction of (Commission (Employer
Incorporation or Organization) File Number) Identification No.)
818 KANSAS AVENUE, TOPEKA, KANSAS 66612
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number Including Area Code (785) 575-6300
WESTERN RESOURCES, INC.
Item 5. Other Events
Western Resources herein files the following:
Exhibit 23 - Consent of Independent Public Accountants
Exhibit 99.1 - Kansas City Power & Light Company 12/31/97 Form 10-K
Exhibit 99.2 - Kansas City Power & Light Company 3/31/98 Form 10-Q
Western Resources was not involved in the preparation of Exhibit 99.1
or Exhibit 99.2 and therefore is not in a position to verify any such
information or statements.
AVAILABLE INFORMATION
The reader's attention is directed to additional filings of Western
Resources, Inc. (Western Resources) and Kansas City Power & Light Company
(KCPL).
Western Resources and KCPL are subject to the informational
requirements of the Exchange Act, and in accordance therewith file
reports, proxy statements and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and
other information filed by Western Resources and KCPL with the Commission
may be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the public reference facilities in the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of information may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Because Western Resources and
KCPL each file certain documents electronically with the Commission, reports,
proxy and information statements and other information regarding Western
Resources and KCPL may also be obtained at prescribed rates from the
Commission at the Commission's Web site, http//:www.sec.gov. The Western
Resources Common Stock and the KCPL Common Stock are listed and traded on the
NYSE. The KCPL Common Stock is also listed on the Chicago Stock Exchange.
Reports, proxy statements and other information filed by Western Resources and
KCPL with the Commission may be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005 and, concerning KCPL only, at the
offices of the CSE, 440 South LaSalle Street, Chicago, Illinois 60605.
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.
Western Resources, Inc.
Date July 13, 1998 By /s/ Jerry D. Courington
Jerry D. Courington,
Controller
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
on Form S-3 (Nos. 333-26115, 33-49553, 333-02023, 33-50069 and 33-62375),
the registration statements on Form S-8 (Nos. 33-57435, 333-13229,
333-06887, 333-20393, and 333-20413) and the registration statements on
Form S-4 (Nos. 33-56369 and 333-02711) of Western Resources, Inc. of our
report dated January 30, 1998, on our audits of the consolidated financial
statements of Kansas City Power & Light Company and Subsidiary as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996
and 1995, which report is included in Kansas City Power & Light Company and
Subsidiary's Form 10-K, an exhibit in this Form 8-K.
Kansas City, Missouri /s/PricewaterhouseCoopers LLP
July 13, 1998 PricewaterhouseCoopers LLP
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut Street
Kansas City, Missouri 64106
(Address of principal executive offices)
Registrant's telephone number, including area code: 816-556-2200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
___________________ ______________________
Cumulative Preferred Stock New York Stock Exchange
par value $100 per share -
3.80%, 4.50%, 4.35%
Common Stock without par value New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
On March 10, 1998, KCPL had 61,872,915 outstanding shares of
common stock without par value, and the aggregate market value
(based upon the closing price of these shares on the New York
Stock Exchange) of voting securities held by nonaffiliates of
KCPL was approximately $1,890,990,964.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Proxy Statement are incorporated by reference
in Part III of this report.
_____________________________________________________________________
TABLE OF CONTENTS
Page
Number
Item 1. Business........................................ 1
Proposed Merger With Western Resources, Inc... 1
Regulation................................. 2
Rates................................. 2
Environmental Matters................. 2
Air.............................. 3
Water............................ 3
Competition................................ 4
Fuel Supply................................ 4
Coal.................................. 4
Nuclear............................... 4
High-Level Waste................. 5
Low-Level Waste.................. 5
Employees.................................. 6
Subsidiaries............................... 6
Officers of the Registrant................. 7
KCPL Officers......................... 7
KLT Inc. Officers..................... 8
Item 2. Properties...................................... 8
Generation Resources....................... 8
Transmission and Distribution Resources.... 9
General.................................... 9
Item 3. Legal Proceedings............................... 10
Item 4. Submission of Matters to a Vote of Security
Holders......................................... 11
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters................. 11
Market Information......................... 11
Holders.................................... 12
Dividends.................................. 12
Item 6. Selected Financial Data......................... 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................... 14
Item 8. Consolidated Financial Statements............... 25
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure...................................... 47
Item 10. Directors and Executive Officers of the
Registrant...................................... 47
Item 11. Executive Compensation.......................... 47
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................... 47
Item 13. Certain Relationships and Related Transactions.. 47
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................. 48
PART I
ITEM 1. BUSINESS
Kansas City Power & Light Company (KCPL) was incorporated in
Missouri in 1922 and is headquartered in downtown Kansas City,
Missouri. KCPL is a medium-sized public utility engaged in the
generation, transmission, distribution and sale of electricity to
over 445,000 customers in a 4,700 square mile area located in all
or portions of 31 counties in western Missouri and eastern
Kansas. About two-thirds of KCPL's retail sales are to Missouri
customers and the remainder to Kansas customers. Customers
include approximately 391,000 residences, 51,000 commercial
firms, and 3,000 industrials, municipalities and other electric
utilities. Retail revenues in Missouri and Kansas accounted for
approximately 92% of KCPL's total utility revenues in 1997.
Wholesale firm power, bulk power sales and miscellaneous electric
revenues accounted for the remainder of utility revenues. Low
fuel costs and superior plant performance enable KCPL to serve
its customers well while maintaining a leadership position in the
bulk power market.
KLT Inc., a wholly-owned, nonutility subsidiary of KCPL
formed in 1992, pursues nonregulated business ventures. Existing
ventures include investments in domestic and international
nonregulated power production, energy services, oil and gas
development and production, telecommunications, telemetry
technology and affordable housing limited partnerships. See
"Subsidiaries" on page 6 of this report. Approximately 7.9% of
KCPL's net income came from the KLT companies in 1997 (the first
year of significant positive contribution by KLT). KCPL also
owns 47% of Wolf Creek Nuclear Operating Corporation (WCNOC), the
operating company for the Wolf Creek Generating Station (Wolf
Creek).
PROPOSED MERGER WITH WESTERN RESOURCES, INC.
On February 7, 1997, KCPL and Western Resources, Inc.
(Western Resources) entered into an Agreement and Plan of Merger
(the Merger Agreement) to form a strategic business combination.
Western Resources first delivered an unsolicited exchange offer
to KCPL's Board of Directors during the second quarter of 1996.
This initial offer, subject to numerous conditions, proposed the
exchange of $28 (later increased to $31) worth of Western
Resources common stock for each share of KCPL common stock. In
July 1996, Western Resources commenced an exchange offer for KCPL
common stock. In late 1996, KCPL began discussing a possible
merger with Western Resources leading to the Merger Agreement.
In December 1997, KCPL canceled its previously-scheduled
special meeting of shareholders to vote on the transaction
because Western Resources advised that its investment banker,
Salomon Smith Barney (Salomon), had indicated it was unlikely
that Salomon would be in a position to issue a fairness opinion
from a financial point of view to the Western shareholders on the
transaction. The companies are currently exploring other
alternatives on which a transaction could be based.
The current Merger Agreement does not allow KCPL to increase
its common stock dividend prior to the effective time or
termination. It also requires KCPL to redeem all outstanding
shares of preferred stock prior to completion of the merger. The
Merger Agreement can be terminated on June 30, 1998, under
certain circumstances, if
shareholder approval has not been
obtained. If, however, the current Merger Agreement is
terminated under other circumstances and KCPL, within two and one-
half years following termination, agrees to consummate a business
combination with a third party that made a proposal to combine
prior to termination, a payment of $50 million will be due
Western Resources.
REGULATION
KCPL is subject to the jurisdiction of the Public Service
Commission of the State of Missouri (MPSC), the State Corporation
Commission of the State of Kansas (KCC), the Federal Energy
Regulatory Commission (FERC), the Nuclear Regulatory Commission
(NRC) and certain other governmental regulatory bodies as to
various phases of its operations, including rates, service,
safety and nuclear plant operations, environmental matters and
issuances of securities.
RATES
KCPL's retail electric rates are regulated by the MPSC and
KCC for sales within the respective states of Missouri and
Kansas. FERC approves KCPL's rates for wholesale bulk
electricity sales. Firm electric sales are made by contractual
arrangements between the entity being served and KCPL.
KCPL has not increased any of its retail or wholesale rates
since 1988. Pursuant to a stipulation and agreement with the
MPSC, KCPL reduced Missouri retail rates by about 2.7% effective
January 1, 1994, 2% effective July 9, 1996, and by about 2.5%
effective January 1, 1997. Pursuant to a stipulation and
agreement with the KCC, KCPL began accruing a reduction of about
4.7% in its Kansas retail rates effective January 1, 1998. The
reduction will be implemented coincident with the completion of a
pending rate design case. The amount that accrues between
January 1, 1998, and the implementation date of the rate
reduction will be refunded at that time.
ENVIRONMENTAL MATTERS
KCPL's operations must comply with federal, state and local
environmental laws and regulations. The generation and
transmission of electricity uses, produces and requires disposal
of certain products and by-products, including polychlorinated
biphenyl (PCBs), 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. This liability extends to the current
property owner as well as prior owners since the time of
contamination.
KCPL continually conducts environmental audits designed to
detect contamination and ensure compliance with governmental
regulations. However, compliance programs needed to meet future
environmental laws and regulations governing water and air
quality, including carbon dioxide emissions, hazardous waste
handling and disposal, toxic substances and the effects of
electromagnetic fields, could require substantial changes to
operations or facilities. KCPL cannot presently estimate any
additional costs of meeting such new regulations or standards
which might be established in the future, nor can it estimate the
possible effect which any new regulations or standards could have
upon its operations. However, KCPL currently estimates that
expenditures necessary to comply with environmental regulations
will not be material with the possible exceptions set forth
below.
AIR
The Clean Air Act Amendments of 1990 call for a study of
certain air toxic substances. Based on the outcome of this
study, regulation of these substances, including mercury, could
be required. We cannot predict the likelihood of any such
regulations or compliance costs.
The United States Environmental Protection Agency (EPA)
published new air quality standards for ozone and particulate
matter in July 1997. Additional regulations implementing the new
standards are expected to be finalized in 1998. In the absence
of the implementation regulations, the real impact of the
standards on KCPL cannot be determined; however, the impact on
KCPL and other utilities who use fossil fuels could be
substantial.
Under the new fine particulate regulations, EPA will begin a
five-year study of fine particulate emissions. Until this
testing and review period have been completed, KCPL cannot
determine additional compliance costs, if any, associated with
the new particulate regulations.
In 1997, EPA also issued new proposed regulations on reducing
Nitrogen Oxide (NOx) emissions. Under the new regulations, 22
states, including Missouri but not Kansas, would be required to
develop plans to reduce NOx emissions. The new limits would go
into effect in either 2002 or 2004. The cost of equipment to
reduce NOx emissions could be substantial; however, until studies
are completed on the actual impact of the new regulations on
KCPL, the costs cannot be determined.
At a December 1997 meeting in Kyoto, Japan, the Clinton
Administration supported changes to the International Global
Climate Change treaty which would require a 7% reduction in
United States Carbon Dioxide (CO2) emissions below 1990 levels.
President Clinton has stated that this change in the treaty will
not be submitted to the U.S. Senate at this time where
ratification is uncertain. If future national restrictions on
electric utility CO2 emissions are eventually required, the
financial impact upon KCPL could be substantial.
WATER
KCPL commissioned an environmental assessment of its
Northeast Station and of its Spill Prevention Control and
Countermeasure plan as required by the Clean Water Act. The
assessment revealed contamination of the site by petroleum
products, heavy metals, volatile and semi-volatile organic
compounds, asbestos, pesticides and other regulated substances.
Based upon studies and discussions with Burns & McDonnell, the
cost of the cleanup could range between $1.5 million and $6
million.
Also, groundwater analysis has indicated that certain
volatile organic compounds are moving through the Northeast site,
just above bedrock, from unidentified sources off-site. The
Missouri Department of Natural Resources (MDNR) was notified of
the possible release of petroleum products and the presence of
volatile organic compounds (VOCs) moving under the site.
Monitoring and removal of free petroleum products continues at
the site. During 1997, KCPL was advised that MDNR located a
source of the VOCs upgradient and unrelated to KCPL. MDNR is
working with that site owner to reduce the flow of VOCs under
Northeast Station.
COMPETITION
See "Regulation and Competition" on page 14 of this report.
FUEL SUPPLY
KCPL's principal sources of fuel for electric generation are
coal and nuclear fuel. These fuels are expected to satisfy about
98% of the 1998 fuel requirements with the remainder provided by
other sources including natural gas, oil and steam. The 1997 and
estimated 1998 fuel mix, based on total Btu generation, are as
follows:
Estimated
1997 1998
____ _________
Coal 74% 74%
Nuclear 25% 25%
Other 1% 1%
COAL
KCPL's average cost per million Btu of coal burned, excluding
fuel handling costs, was $0.85 in 1997, $0.85 in 1996 and $0.89
in 1995. KCPL's cost of delivered coal is about 62% of the
regional average.
During 1998, approximately 10.9 million tons of coal (7.6
million tons, KCPL's share) are projected to be burned at KCPL's
generating units, including jointly-owned units. KCPL has
entered into coal-purchase contracts with various suppliers in
Wyoming's Powder River Basin, the nation's principal supplier of
low-sulfur coal. These contracts, with expiration dates ranging
from 1998 through 2003, will satisfy approximately 95% of the
projected coal requirements for 1998, 50% for 1999, and 20%
thereafter.
NUCLEAR
WCNOC has on hand or under contract 100% of the uranium needs
for 1998 and 59% of the uranium required to operate Wolf Creek
through September 2003. The balance is expected to be obtained
through spot market and contract purchases.
Contracts are in place for the conversion of uranium to
uranium hexaflouride sufficient for operation of Wolf Creek
through 2001.
Contracts are in place for 100% of Wolf Creek's uranium
enrichment requirements for 1998 and 88% of the enrichment
services required for operation of Wolf Creek through March 2005.
The balance is expected to be obtained through a combination of
contract and spot market purchases.
HIGH-LEVEL WASTE
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. We pay the DOE a quarterly fee of one-tenth of a
cent for each kilowatt-hour of net nuclear generation delivered
and sold for future disposal of spent nuclear fuel. These
disposal costs are charged to fuel expense and recovered through
rates.
In 1996 a United States Court of Appeals issued a decision
that the Nuclear Waste Policy Act unconditionally obligated DOE
to begin accepting spent fuel for disposal in 1998. In late
1997, the same court issued another decision precluding DOE from
concluding that its delay in accepting spent fuel is
"unavoidable" under its contracts with utilities due to lack of a
repository or interim storage authority. By yearend 1997, KCPL
and other utilities had petitioned DOE for authority to suspend
payments of their quarterly fees until such time as DOE begins
accepting spent fuel. In January 1998, DOE denied the utilities'
petition. The utilities intend to appeal that decision.
A permanent disposal site may not be available for the
industry until 2010 or later, although an interim facility may be
available earlier. Under current DOE policy, once a permanent
site is available, the DOE will accept spent nuclear fuel on a
priority basis; the owners of the oldest spent fuel will be given
the highest priority. As a result, disposal services for Wolf
Creek may not be available prior to 2016. Wolf Creek has an on-
site, temporary storage facility for spent nuclear fuel. Under
current regulatory guidelines, this facility can provide storage
space until about 2005. Wolf Creek has started plans to increase
its on-site spent fuel storage capacity. That project, expected
to be complete by 2000, should provide storage capacity for all
spent fuel expected to be generated by Wolf Creek through the end
of its licensed life in 2025.
LOW-LEVEL WASTE
The Low-Level Radioactive Waste Policy Amendments Act of
1985 mandated that the various states, individually or through
interstate compacts, develop alternative low-level radioactive
waste disposal facilities. The states of Kansas, Nebraska,
Arkansas, Louisiana and Oklahoma formed the Central Interstate
Low-Level Radioactive Waste Compact and selected a site in
northern Nebraska to locate a disposal facility. The present
estimate of the cost for such a facility is about $154 million.
WCNOC and the owners of the other five nuclear units in the
compact have provided most of the pre-construction financing for
this project. As of January 31, 1998, utilities in the compact
have spent in excess of $82 million, of which $13.3 million was
WCNOC's share.
There is uncertainty as to whether this project will be
completed. Significant opposition to the project has been raised
by Nebraska officials and residents in the area of the proposed
facility, and attempts have been made through litigation and
proposed legislation in Nebraska to slow down or stop development
of the facility.
EMPLOYEES
At December 31, 1997, KCPL and its wholly-owned subsidiaries
had 2,298 employees (including temporary and part-time
employees), 1,429 of which were represented by three local unions
of the International Brotherhood of Electrical Workers (IBEW).
KCPL has labor agreements with Local 1613, representing clerical
employees (which expires March 31, 1999), with Local 1464,
representing outdoor workers (which expires January 8, 2000), and
with Local 412, representing power plant workers (which expires
February 28, 2001). KCPL is also a 47% owner of WCNOC, which
employs 981 persons to operate Wolf Creek.
SUBSIDIARIES
KLT Inc. has six active wholly-owned direct subsidiaries:
- KLT Investments Inc., a passive investor in affordable
housing investments which generate tax credits.
- KLT Investments II Inc., a passive investor in economic,
community-development and energy-related projects.
- KLT Energy Services Inc., a participant in energy management
and lighting services businesses. KLT Energy Services Inc. has
one majority-owned subsidiary, Custom Energy, L.L.C., which
provides energy management and lighting services to commercial,
industrial and governmental customers. KLT Energy Services Inc.
also has a 50%-owned subsidiary, Custom Lighting Services,
L.L.C., which provides streetlight design, construction and
maintenance services to municipalities.
- KLT Power Inc., a participant in independent power and
cogeneration projects. KLT Power Inc. has five wholly-owned
subsidiaries, KLT Iatan Inc., which was formed for the co-
development of the Iatan Unit 2 coal-fired power plant; KLT Power
International 2, which participates in independent power
projects located in China; KLT Power Asia which participates in
independent power projects located in certain Asian countries;
and KLT Power Latin American and KLT Power (Bermuda), Ltd., which
participate in independent power projects located in Latin
America.
- KLT Gas Inc., a participant in oil and gas reserves and
exploration. KLT Gas Inc. has one wholly-owned subsidiary, FAR
Gas Acquisitions Corporation, which holds limited partnerships in
coal seam methane gas wells that generate tax credits. KLT Gas
Inc. also has a 95% ownership in Apache Canyon Gas L.L.C., which
has production from over 70 coal seam methane wells and continues
development of mineral rights in the vicinity of Weston,
Colorado.
- KLT Telecom Inc., an investor in communications and
information technology opportunities. KLT Telecom Inc. has two
majority-owned subsidiaries, Municipal Solutions, an outsourcer
of municipal services, and Telemetry Solutions, a provider of
storage tank monitoring services. KLT Telecom Inc. is also an
investor in Digital Teleport, Inc., a St. Louis, Missouri,
facility-based provider of long-haul and local telecommunication
services.
KCPL's equity investment in KLT Inc. at December 31, 1997, was
$119 million.
OFFICERS OF THE REGISTRANT
KCPL OFFICERS
Year
Named
Name Age Positions Currently Held Officer
____________________ ___ __________________________________ _______
Drue Jennings 51 Chairman of the Board, President 1980
and Chief Executive Officer
Bernard J. Beaudoin 57 Executive Vice President - Chief 1984
Financial Officer
Marcus Jackson 46 Executive Vice President - Chief 1989
Operating Officer
J. Turner White 49 Executive Vice President - 1990
Corporate Development
John J. DeStefano 48 Senior Vice President - Business 1989
Development
Jeanie Sell Latz 46 Senior Vice President - Corporate 1991
Services, Corporate Secretary
and Chief Legal Officer
Frank L. Branca 50 Vice President - Wholesale and 1989
Transmission
Steven W. Cattron 42 Vice President - Marketing and 1994
Sales
Charles R. Cole 51 Vice President - Customer Services 1990
Douglas M. Morgan 55 Vice President - Information 1994
Technology
Richard A. Spring 43 Vice President - Production 1994
Bailus M. Tate 51 Vice President - Human Resources 1994
Andrea F. Bielsker 39 Treasurer 1996
Neil A. Roadman 52 Controller 1980
Mark C. Sholander 52 General Counsel and Assistant 1986
Secretary
KLT INC. OFFICERS
Year
Named
Name Age Positions Currently Held Officer
____________________ ___ __________________________________ _______
Ronald G. Wasson 53 President 1995
Floyd R. Pendleton 54 Vice President-Business 1992
Development
David M. McCoy 50 Vice President-Business 1996
Development
Mark G. English 46 Vice President, General 1995
Counsel and Corporate Secretary
James P. Gilligan 41 Treasurer 1997
Teresa D. Cook 37 Controller 1997
All of the foregoing persons have been officers or employees
in a responsible position with KCPL or KLT for the past five
years except for Mr. Spring. Mr. Spring was an employee of KCPL
from 1978 to 1993, when he left KCPL to join Northern Indiana
Public Service Company as Director of Electric Production. In
July 1994, he rejoined KCPL as Vice President-Production.
The term of office of each officer commences with his or her
appointment by the Board of Directors and ends at such time as
the Board of Directors may determine.
ITEM 2. PROPERTIES
GENERATION RESOURCES
KCPL's generating facilities consist of the following:
Estimated
1998
Year Megawatt (mw)
Unit Completed Capacity Fuel
____________ _________ _____________ ________
Existing Units
Base Load.. Wolf Creek(a) 1985 547(b) Nuclear
Iatan 1980 469(b) Coal
LaCygne 2 1977 336(b) Coal
LaCygne 1 1973 344(b) Coal
Hawthorn 6(c) 1997 142 Gas/Oil
Hawthorn 5 1969 479 Coal/Gas
Montrose 3 1964 171 Coal
Montrose 2 1960 163 Coal
Montrose 1 1958 163 Coal
Peak Load.. Northeast 13 and 14(c) 1976 119 Oil
Northeast 17 and 18(c) 1977 124 Oil
Northeast 15 and 16(c) 1975 124 Oil
Northeast 11 and 12(c) 1972 106 Oil
Grand Avenue (2 units) 1929 & 1948 77 Gas
_____
Total 3,364
_____
_____
(a) This unit is one of KCPL's principal generating
facilities and has the lowest fuel cost of any of its
generating facilities. An extended shutdown of the unit
could have a substantial adverse effect on the operations
of KCPL and its financial condition.
(b) KCPL's share of jointly-owned unit.
(c) Combustion turbines.
KCPL's maximum system net hourly peak load of 3,044 mw
occurred on July 25, 1997. The maximum winter peak load of 2,012
mw occurred on December 19, 1996. The accredited generating
capacity of KCPL's electric facilities in the summer (when peak
loads are experienced) of 1997 under MOKAN Power Pool standards
was 3,297 mw.
KCPL owns the Hawthorn Station (Jackson County, Missouri),
Montrose Station (Henry County, Missouri), Northeast Station
(Jackson County, Missouri) and two Grand Avenue Station turbine
generators (Jackson County, Missouri). KCPL also owns 50% of the
688-mw LaCygne 1 Unit and 672-mw LaCygne 2 Unit in Linn County,
Kansas; 70% of the 670-mw Iatan Station in Platte County,
Missouri; and 47% of the 1,164 mw Wolf Creek in Coffey County,
Kansas.
TRANSMISSION AND DISTRIBUTION RESOURCES
KCPL's electric transmission system is interconnected with
systems of other utilities to permit bulk power transactions with
other electricity suppliers in Kansas, Missouri, Iowa, Nebraska
and Minnesota. KCPL is a member of the MOKAN Power Pool, which
is a contractual arrangement among eleven utilities in western
Missouri and Kansas which interchange electric energy, share
reserve generating capacity, and provide emergency and standby
electricity services to each other.
KCPL owns approximately 1,700 miles of transmission lines,
approximately 8,900 miles of overhead distribution lines, and
approximately 3,100 miles of underground distribution lines.
KCPL has all franchises necessary to sell electricity within the
territories from which substantially all of its gross operating
revenue is derived.
GENERAL
KCPL's principal plants and properties, insofar as they
constitute real estate, are owned in fee; certain other
facilities are located on premises held under leases, permits or
easements; and its electric transmission and distribution systems
are for the most part located over or under highways, streets,
other public places or property owned by others for which
permits, grants, easements or licenses (deemed satisfactory but
without examination of underlying land titles) have been
obtained.
Substantially all of the fixed property and franchises of
KCPL, which consists principally of electric generating stations,
electric transmission and distribution lines and systems, and
buildings (subject to exceptions and reservations), are subject
to a General Mortgage Indenture and Deed of Trust dated as of
December 1, 1986.
ITEM 3. LEGAL PROCEEDINGS
KANSAS CITY POWER & LIGHT CO. V. WESTERN RESOURCES, INC., ET. AT
On May 20, 1996, KCPL commenced litigation in the United
States District Court for the Western District of Missouri,
Western Division (District Court), against Western Resources,
Inc. (Western Resources) and Robert L. Rives (Rives) requesting
the District Court to declare the Amended and Restated Agreement
and Plan of Merger between KCPL, KC Merger Sub, Inc., UtiliCorp
and KC United Corp., dated January 1996, amended May 20, 1996
(Amended Merger Agreement), and the transactions contemplated
thereby (collectively the Transaction) were legal. On May 24,
1996, Jack R. Manson (Manson), filed an action to become a party
to the above litigation as the shareholders' representative.
Manson made claims against KCPL and all its directors stating
they had violated their fiduciary duties; that their actions in
adopting the Amended Merger Agreement were illegal and ultra
vires; that the adoption of the Amended Merger Agreement
illegally deprived shareholders of rights under Missouri law; and
that the adoption of the Amended Merger Agreement was an
excessive response to Western Resources' acquisition offer.
The District Court on August 2, 1996, ruled the transactions
contemplated by the Amended Merger Agreement were legally valid
and authorized under Missouri law; but the combined transactions
resulted in a merger between KCPL and UtiliCorp requiring, under
Missouri law, approval by the holders of two-thirds of the
outstanding shares of KCPL's stock.
By order dated November 25, 1996, the District Court allowed
Manson to amend his counterclaim claiming the directors breached
their fiduciary duties by refusing to meet with Western Resources
and had committed reckless, grossly negligent, or negligent waste
of corporate assets by pursuing the merger with UtiliCorp.
On July 18, 1997, the District Court issued an Order
dismissing the amended counterclaim. Manson then filed a motion
to amend the Order requesting the Court award his attorneys' fees
in this matter. The Court, in an Order dated August 25, 1997,
agreed to consider the issue of attorneys' fees. In response,
Manson and his counsel filed an Application for an Award of
Attorneys' Fees and Related Disbursements seeking an award of
over $6 million, which is still pending. On September 23, 1997,
Manson also appealed the Order as amended, to the United States
Court of Appeals for the Eighth Circuit, which has stayed the
matter pending the outcome of the fee application. KCPL believes
it will be able to successfully defend these actions.
STATE OF MISSOURI EX REL. INTER-CITY BEVERAGE CO., INC., ET. AL
VS. THE PUBLIC SERVICE COMMISSION OF THE STATE OF MISSOURI, ET.
AL; AND JEWISH COMMUNITY CAMPUS OF GREATER KANSAS CITY, INC. VS.
KANSAS STATE CORPORATION COMMISSION, ET. AL.
On August 13, 1993, a lawsuit was filed by nine customers,
including Inter-City Beverage Co., Inc., in the Circuit Court of
Jackson County, Missouri against KCPL. The suit alleged the
misapplication of certain of KCPL's electric rate tariffs
resulting in overcharges to industrial and commercial customers
which had been provided service under those tariffs and requested
certification as a class action. On December 3, 1993, the Court
dismissed the matter for lack of subject matter jurisdiction.
Plaintiffs appealed to the Missouri Court of Appeals, Western
District. The Court of Appeals upheld the
dismissal. Plaintiffs then filed a motion to transfer the
case with the Missouri Supreme Court. The motion was denied.
Plaintiffs then took their claims to the state commissions
filing complaints at the MPSC on August 23, 1995, and at the KCC
on August 30, 1995, on behalf of Jewish Community Campus, the
only Kansas plaintiff. The MPSC complaint was dismissed May 1,
1996. The Cole County, Missouri Circuit Court affirmed the
dismissal on January 29, 1997. On March 4, 1997, Plaintiffs filed
a Notice of Appeal to the Missouri Court of Appeals, Western
District. Plaintiffs' Initial Brief was filed with the Court of
Appeals on June 9, 1997. The briefs of KCPL and the MPSC were
filed on July 9, 1997. Plaintiffs' Reply Brief was filed on
August 4, 1997. The appeal was argued December 9, 1997.
The KCC complaint was dismissed April 9, 1996. The Johnson
County, Kansas District Court affirmed the dismissal on February 4,
1997. The Plaintiff filed a Notice of Appeal to the Kansas
Court of Appeals on March 3, 1997. Plaintiff's Initial Brief was
filed with the Court of Appeals on May 27, 1997. The briefs of
KCPL and the KCC were filed on June 30, 1997. Plaintiff's Reply
Brief was filed July 15, 1997.
Should the proceedings before the MPSC and KCC be overturned
by the state courts, KCPL could be required to refund the alleged
overcharges. KCPL believes it will be able to successfully
defend these actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders
through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION:
(1) Principal Market:
Common Stock of KCPL is listed on the New York Stock
Exchange and the Chicago Stock Exchange.
(2) Stock Price Information:
Common Stock Price Range
_________________________________________
1997 1996
___________________ _________________
Quarter High Low High Low
_______ _________ ________ _______ ______
First $29-3/4 $28 $27-1/4 $24
Second 29-1/8 27-3/8 27-3/4 23-5/8
Third 29-13/16 28-7/16 28-3/8 26-1/4
Fourth 29-15/16 27-3/8 29-3/8 26-1/2
HOLDERS:
At December 31, 1997, KCPL's Common Stock was held by 24,300
shareholders of record.
DIVIDENDS:
Common Stock dividends were declared as follows:
Quarter 1998 1997 1996
_______ _____ _____ _____
First $0.405 $0.405 $0.390
Second 0.405 0.390
Third 0.405 0.405
Fourth 0.405 0.405
KCPL's Restated Articles of Consolidation contain certain
restrictions on the payment of dividends on KCPL's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31
1997(a) 1996(b) 1995 1994(c) 1993
(dollars in millions except per share amounts)
Operating revenues $ 896 $ 904 $ 886 $ 868 $ 857
Net income $ 77 $ 108 $ 123 $ 105 $ 106
Earnings per common
share $ 1.18 $ 1.69 $ 1.92 $ 1.64 $ 1.66
Total assets at
year-end $3,058 $2,915 $2,883 $2,770 $2,755
Total mandatorily redeemable
preferred securities $ 150 $ -- $ -- $ -- $ --
Total redeemable
preferred stock and
long-term debt
(including current
maturities) $1,008 $ 971 $ 911 $ 833 $ 870
Cash dividends per
common share $ 1.62 $ 1.59 $ 1.54 $ 1.50 $ 1.46
Ratio of earnings to
fixed charges 2.03 3.06 3.94 4.07 3.80
(a) In 1997, KCPL recorded a $53 million payment to UtiliCorp United
(UtiliCorp) for terminating the merger with UtiliCorp and agreeing to
a merger with Western Resources Inc. (Western Resources). See Note 13
to the Consolidated Financial Statements.
(b) In 1996, KCPL recorded $31 million in merger related costs.
(c) In 1994, KCPL recorded a $22.5 million expense for a voluntary
early retirement program.
CERTAIN FORWARD-LOOKING INFORMATION
Statements made in this report which are not based on historical
facts are forward-looking and, accordingly, involve risks and
uncertainties that could cause actual results to differ materially
from those discussed. Any forward-looking statements are intended to
be as of the date on which such a statement is made. In connection
with the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, we are providing the following important factors
that could cause actual results to differ materially from provided
forward-looking information. These important factors include: (a) the
Western Resources Inc. (Western Resources) merger (see Note 13 to the
Consolidated Financial Statements); (b) future economic conditions in
the regional, national and international markets; (c) state, federal
and foreign regulation and possible additional reductions in regulated
electric rates; (d) weather conditions; (e) financial market
conditions, including, but not limited to changes in interest rates;
(f) inflation rates; (g) increased competition, including, but not
limited to, the deregulation of the United States electric utility
industry, and the entry of new competitors; (h) ability to carry out
marketing and sales plans; (i ) ability to achieve generation planning
goals and the occurrence of unplanned generation outages; (j) nuclear
operations; (k) ability to enter new markets successfully and
capitalize on growth opportunities in nonregulated businesses, and (l)
adverse changes in applicable laws, regulations or rules governing
environmental, tax or accounting matters. This list of factors may
not be all inclusive since it is not possible for us to predict all
possible factors.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATUS OF MERGER
See Note 13 to the Consolidated Financial Statements as to the
current status of the merger agreement with Western Resources Inc.
(Western Resources). In December 1996 the Federal Energy Regulatory
Commission (FERC) issued a statement concerning electric utility
mergers. Under the statement, companies must demonstrate that their
merger does not adversely affect competition or wholesale rates. As
remedies, FERC may consider a range of conditions including
transmission upgrades, divestitures of generating assets or formation
of independent system operators.
REGULATION AND COMPETITION
As competition develops throughout the electric utility industry,
we are positioning Kansas City Power & Light Company (KCPL) to excel
in an open market. We are improving the efficiency of KCPL's core
utility operations, lowering prices and offering new services. We now
offer customized energy packages to larger customers, including
options offering natural gas contracts.
Competition in the electric utility industry was accelerated with
the National Energy Policy Act of 1992. This Act gives FERC the
authority to require electric utilities to provide transmission line
access to independent power producers (IPPs) and other utilities
(wholesale wheeling). KCPL, already active in the wholesale wheeling
market, was one of the first utilities to receive FERC's approval of
an open-access tariff for wholesale wheeling transactions. In April
1996 FERC issued an order requiring all owners of transmission
facilities to adopt open-access tariffs and participate in wholesale
wheeling. We have made the necessary filings to comply with that
order.
FERC's April 1996 order has encouraged more movement toward
retail competition at the state level. An increasing number of states
have already adopted open access requirements for utilities' retail
electric service, allowing competing suppliers access to their retail
customers (retail wheeling). Many other states are actively
considering retail wheeling. In Kansas, the retail wheeling task
force has proposed a restructuring bill that would implement retail
competition on July 1, 2001. Some of the key points included in the
proposed bill are: 1) the Kansas Corporation Commission (KCC) will
determine the amount of under-utilized assets (stranded costs) each
utility is allowed to recover and 2) a unit charge per kwh will be
assessed to all customers for recovery of competitive transition costs
(these costs include stranded costs, other regulatory assets, nuclear
decommissioning, etc.). In Missouri, a legislative committee has been
formed to study the issue while the Missouri Public Service Commission
(MPSC) has established a task force to plan for implementation of
retail wheeling if authorized by law.
Competition through retail wheeling could result in market-based
rates below current cost-based rates. This would provide growth
opportunities for low-cost producers and risks for higher-cost
producers, especially those with large industrial customers. Lower
rates and the loss of major customers could result in stranded costs
and place an unfair burden on the remaining customer base or
shareholders. Testimony filed in the merger case in Kansas for KCPL
indicated that stranded costs are approximately $1 billion. An
independent study prepared at the request of the KCC concluded that
there are no stranded costs. We cannot predict the extent that
stranded costs will be recoverable in future rates. If an adequate
and fair provision for recovery of these lost revenues is not
provided, certain generating assets may have to be evaluated for
impairment and appropriate charges recorded against earnings. In
addition to lower profit margins, market-based rates could also
require generating assets to be depreciated over shorter useful lives,
increasing operating expenses.
Although Missouri and Kansas have not yet authorized retail
wheeling, we believe KCPL is positioned well to compete in an open
market with its diverse customer mix and pricing strategies. About
21% of KCPL's retail mwh sales are to industrial customers which is
below the utility industry average. KCPL has a flexible rate
structure with industrial rates that are competitively priced with
other companies in the region. In addition, long-term contracts are
in place or under negotiation for a large portion of KCPL's industrial
sales. There has not been direct competition for retail electric
service in KCPL's service territory although there has been
competition in the bulk power market and between alternative fuels.
Increased competition could also force utilities to change
accounting methods. Financial Accounting Standards Board (FASB)
Statement No. 71 - Accounting for Certain Types of Regulation, applies
to regulated entities whose rates are designed to recover the costs of
providing service. An entity's operations could stop meeting the
requirements of FASB 71 for various reasons, including a change in
regulation or a change in the competitive environment for a company's
regulated services. For those operations no longer meeting the
requirements of regulatory accounting, regulatory assets would be
written off. KCPL's regulatory assets, totaling $153 million at
December 31, 1997, will be maintained as long as FASB 71 requirements
are met.
It is possible that competition could eventually have a
materially adverse affect on KCPL's results of operations and
financial position. Should competition eventually result in a
significant charge to equity, capital costs and requirements could
increase significantly.
NONREGULATED OPPORTUNITIES
KLT Inc. (KLT) is a wholly-owned subsidiary pursuing nonregulated
business ventures. Existing ventures include investments in domestic
and international nonregulated power production, energy services, oil
and gas development and production, telecommunications, telemetry
technology and affordable housing limited partnerships.
KCPL had a total equity investment in KLT of $119 million as of
December 31, 1997, and KLT's net income for the year totaled $6
million compared to a $1.4 million loss in 1996. KLT's consolidated
assets at December 31, 1997, totaled $346 million. The growth of KLT
accounts for most of the increase in KCPL's consolidated investments
and nonutility property (see Capital Requirements and Liquidity
section). The February 7, 1997, Agreement and Plan of Merger with
Western Resources includes a provision that requires Western
Resources' approval of investments beyond a certain limit excluding
the cost of routine regulated utility capital expenditures. In 1997
new investments were restricted under this agreement.
EARNINGS OVERVIEW
Earnings per share (EPS) for 1997 of $1.18 decreased $0.51 from
1996. KCPL's pursuit of its strategic options resulted in the
September 1996 termination of a merger agreement with UtiliCorp United
Inc. (UtiliCorp) and the February 1997 announcement of KCPL's
agreement to combine with Western Resources after nine months of
defending against an unsolicited exchange offer. These actions
triggered KCPL's payment of $53 million in February 1997 to UtiliCorp
under provisions of the UtiliCorp merger agreement, lowering EPS for
1997 by $0.52. In 1997 $7 million ($0.07 per share) of merger-related
expenses were incurred (see Note 13). The net effect of the rate
reductions approved by the MPSC lowered EPS for the year by an
estimated $0.17. Increased depreciation expense also negatively
affected EPS for the year. Partially offsetting these decreases are
continued load growth, lower deferred Wolf Creek amortization and an
increase in subsidiary income. Additionally, merger-related costs
reduced EPS in the prior year by $0.31.
EPS for 1996 of $1.69 decreased $0.23 from 1995. Terminating the
merger agreement in September 1996 with UtiliCorp and defending
against Western Resources' unsolicited exchange offer reduced 1996 EPS
by $0.31. Other factors contributing to the decrease included mild
summer temperatures and the effects of a new stipulation and agreement
with the Missouri commission. In addition, EPS for 1995 included a
$0.05 per share gain on the sale of rail cars. Despite the
unfavorable weather and merger-related charges, continued load growth
contributed favorably to 1996 EPS.
MEGAWATT-HOUR (MWH) SALES AND ELECTRIC OPERATING REVENUES
Sales and revenue data:
Increase (Decrease) from Prior Year
1997 1996
Mwh Revenues Mwh Revenues
(revenue change in millions)
Retail:
Residential 5 % $ 9 1 % $ -
Commercial 4 % (1) 4 % 10
Industrial (4)% (3) 6 % 5
Other 1 % (3) (4)% -
Total retail 3 % 2 4 % 15
Sales for resale:
Bulk power sales (22)% (12) 1 % 6
Other 19 % 1 29 % -
Total (9) 21
Other revenues 1 (3)
Total electric operating revenues $(8) $18
During 1996 the MPSC approved a stipulation and agreement
authorizing a $20 million revenue reduction in two phases and an
increase in depreciation and amortization expense by $9 million per
year. In July 1996 we implemented phase one of the revenue reduction
designed to reduce revenues from commercial and industrial customers
by an estimated $9 million per year. This decrease is achieved with
an increase in summer revenues offset by a larger decrease in winter
revenues. This design more closely follows KCPL's increased costs of
generating electricity in the summer. The second phase of this
stipulation, implemented January 1, 1997, further reduced Missouri
residential, commercial and industrial revenues by an estimated $11
million per year. The decreases in revenues as a result of this
stipulation and agreement were about $20 million for 1997 and $3
million for 1996.
Effective January 1, 1998, the KCC approved a settlement
agreement authorizing a $14.2 million revenue reduction and an
increase in depreciation expense of $2.8 million. When the KCC
approves a new rate design, which is anticipated by year-end 1998,
KCPL will refund the portion of the $14.2 million that has accrued
between January 1, 1998 and the implementation date of the new rate
design.
Summer temperatures were very mild in 1997 and 1996 compared with
1995, remaining below normal for the fifth consecutive year. Despite
this mild weather pattern, retail mwh sales increased in each of the
last five years due to load growth. Load growth consists of higher
usage-per-customer as well as the addition of new customers.
Retail mwh sales for 1997 increased 3% over 1996 while retail
revenues remained relatively flat due largely to the Missouri revenue
reductions discussed above. Industrial sales and revenues
declined primarily because of reduced sales to a major industrial customer
as a result of a strike by its employees.
Retail mwh sales for 1996 increased 4% over 1995 while retail
revenues increased only 2%. Similar to 1997, the Missouri revenue
reductions are the main reason for this difference. Additionally,
long-term contracts with major industrial customers contributed to the
decline in retail revenue per mwh. These contracts are tailored to
meet customers' needs in exchange for their long-term commitment to
purchase energy. Long-term contracts are in place or under
negotiation for a large portion of KCPL's industrial sales.
Bulk power sales vary with system requirements, generating unit
and purchased power availability, fuel costs and the requirements of
other electric systems. Outages at the LaCygne 1 and 2 generating
units in the second quarter of 1997 contributed to lower bulk power
mwh sales in the current year (see Fuel and Purchased Power section).
Total revenue per mwh sold varies with changes in rate tariffs,
the mix of mwh sales among customer classifications and the effect of
declining price per mwh as usage increases. An automatic fuel
adjustment provision is only included in sales for resale tariffs,
which apply to less than 1% of revenues.
Future mwh sales and revenues per mwh will also be affected by
national and local economies, weather and customer conservation
efforts. Competition, including alternative sources of energy such as
natural gas, co-generation, IPPs and other electric utilities, may
also affect future sales and revenue.
FUEL AND PURCHASED POWER
Combined fuel and purchased power expenses for 1997 remained
consistent with 1996 levels while total mwh sales (total of retail and
sales for resale) decreased by 3%. This difference is largely
attributable to an increase in purchased power expenses. The cost per
kwh for purchased power is significantly higher than the cost per kwh
of generation. Purchased power expense increased by about $7 million
in 1997 over 1996 as additional replacement power expenses were
incurred during outages at the LaCygne generating units in 1997.
Nuclear fuel costs per MMBTU remain substantially less than the
MMBTU price of coal. Nuclear fuel costs per MMBTU increased 1% during
1997 and 26% during 1996. Nuclear fuel costs per MMBTU averaged 60%,
59% and 45% of the MMBTU price of coal during 1997, 1996 and 1995,
respectively. We expect the current relationship and the price of
nuclear fuel to remain fairly constant through the year 2001. During
1997 and 1996 fossil plants represented about 74% of generation and
the nuclear plant about 26%.
The price of coal burned declined slightly in 1997 compared to
1996 and declined 4% during 1996. KCPL's coal procurement strategies
continue to provide coal costs below the regional average. We expect
coal costs to remain fairly consistent with 1997 levels through 2001.
Combined fuel and purchased power expenses for 1996 increased 8%
or $15 million from 1995, while total mwh sales increased only 3%.
Items contributing to this increase include increases in capacity
purchase contracts, increases in replacement power expenses for Wolf
Creek's spring 1996 refueling outage, and increases in the cost of
nuclear fuel. Partially offsetting these increased expenses was a $2
million decrease in expense from coal inventory adjustments.
Capacity purchase contracts provide a cost-effective alternative
to constructing new capacity and contributed to increased purchased
power expenses in 1996. Additional capacity purchases increased
purchased power expenses about $9 million in 1996.
OTHER OPERATION AND MAINTENANCE EXPENSES
Combined other operation and maintenance expenses for 1997
increased from 1996 due largely to increases in system dispatch,
customer accounts expenses and Wolf Creek non-fuel operations.
Combined other operation and maintenance expenses for 1996 decreased
from 1995 due to the timing of scheduled maintenance programs.
We continue to emphasize new technologies, improved work
methodology and cost control. We are improving system processes to
provide increased efficiencies and improved operations. Through the
use of cellular technology, a majority of customer meters are read
automatically.
DEPRECIATION AND AMORTIZATION
The increase in depreciation expense from 1996 to 1997 and from
1995 to 1996 reflects the implementation of the MPSC stipulation and
agreement discussed in the revenue sections as well as normal
increases in depreciation from capital additions. The stipulation and
agreement, effective July 1, 1996, authorized a $9 million annual
increase in depreciation expense at about the same time the Missouri
portion of Deferred Wolf Creek costs became fully amortized in
December 1996. This amortization totaled about $9 million per year.
The Kansas portion of Deferred Wolf Creek costs became fully
amortized in the second quarter of 1997. Amortization of the Kansas
portion of this asset totaled about $3 million per year.
The Kansas retail revenue agreement approved by the KCC in
January 1998 authorized an annual increase in depreciation expense by
about $3 million effective January 1, 1998.
INCOME TAXES
Operating income taxes decreased $9 million in 1996 from 1995.
The decrease was primarily due to adjustments necessary to reflect the
filing of the 1995 tax returns and the settlement with the Internal
Revenue Service regarding tax issues included in the 1985 through 1990
tax returns. Operating income taxes increased by $3 million in 1997
from this lower than normal 1996 level.
GENERAL TAXES
Components of general taxes:
1997 1996 1995
(thousands)
Property $ 43,529 $ 45,519 $ 46,019
Gross receipts 40,848 42,554 41,416
Other 8,920 9,175 9,386
Total $ 93,297 $ 97,248 $ 96,821
Property taxes decreased from 1996 to 1997 as a result of changes
in Kansas tax law which reduced the mill levy rates.
OTHER INCOME AND (DEDUCTIONS)
Miscellaneous Income
Miscellaneous income increased in 1997 from 1996 due primarily to
increased revenues from non-utility and subsidiary operations.
Dividends on the investment in a fossil-fuel generator in
Argentina (see Capital Requirements and Liquidity section),
revenues from a subsidiary in which KLT obtained a controlling
interest during 1997 and increased revenues from oil and gas
exploration contributed to the increase in miscellaneous income
from subsidiary operations.
Miscellaneous income for 1995 included a $5 million gain from
the sale of steel railcars, which were replaced by leased
aluminum cars. Aluminum cars are lighter-weight and offer more
coal capacity per car, contributing to lower delivered coal
prices.
Miscellaneous Deductions
Miscellaneous deductions increased in 1997 from 1996 due
primarily to a $53 million payment to UtiliCorp in February 1997.
The September 1996 termination of the UtiliCorp merger agreement
and the February 1997 announcement of the agreement to combine
with Western Resources, triggered the payment to UtiliCorp under
provisions of the UtiliCorp merger agreement. Miscellaneous
deductions for 1997 also include $7 million of merger-related
expenses (see Note 13). Miscellaneous deductions for 1996
included $31 million in merger-related costs.
The increase in Miscellaneous deductions in 1997 from 1996 also
reflects increased non-utility expenses and subsidiary operating
costs. Subsidiary expenses included in Miscellaneous deductions
increased by $29 million in 1997 from 1996. The primary
subsidiary expenses that increased are cost of sales,
administrative and general labor and benefits, incentives for gas
production, external consulting services and provision for
uncollectible notes receivable. Expansion into new projects for
the power subsidiaries, increased gas operations and inclusion of
three small companies in which KLT obtained controlling interests
during 1997 are the primary activities that contributed to the
increased expenses.
Miscellaneous deductions increased in 1996 from 1995 due
primarily to the termination of the UtiliCorp merger agreement
and defense against Western Resources' unsolicited exchange
offer. During the third quarter of 1996, $13 million in
previously deferred merger costs and $5 million of the
termination fee were expensed. In addition, costs incurred to
defend against the unsolicited exchange offer increased 1996
expenses by $13 million. Also, subsidiary expenses increased
about $9 million. Total subsidiary expenses, including interest
charges discussed below, are substantially offset by related tax
benefits.
Income Taxes
Income taxes reflect the tax impact of the excess of
miscellaneous deductions over miscellaneous income.
Additionally, we accrued tax credits in 1997 of $23 million
related to KLT's investments in affordable housing limited
partnerships and oil and gas investments. In 1996 and 1995 we
accrued tax credits of $12 million and $5 million, respectively,
related primarily to KLT's investments in affordable housing
limited partnerships. The increase in tax credits accrued in
1997 from 1996 is due to an increase of $8 million in tax credits
related to oil and gas investments. This increase in tax credits
and reduced net income resulted in a significant impact on the
effective income tax rate. Accrued taxes on the balance sheet
decreased primarily because $9 million of these tax credits did
not reduce estimated tax payments because such amounts can only
be refunded by the IRS after the tax return is filed in 1998.
Non-taxable increases in the cash surrender value of corporate-
owned life insurance contracts also affected the relationship
between miscellaneous deductions and income taxes.
INTEREST CHARGES
Long-term debt interest expense increased during 1997 reflecting
higher average levels of long-term debt outstanding compared with the
previous year. The higher average levels of debt resulted mainly from
financing by KLT to support expanding subsidiary operations and
funding of other corporate capital requirements.
The average interest rate on long-term debt, including current
maturities, was 6.1% in 1997 compared with 6.0% in 1996 and 1995.
We use interest rate swap and cap agreements to limit the
interest expense on a portion of KCPL's variable-rate long-term debt.
We do not use derivative financial instruments for trading or other
speculative purposes. Although these agreements are an integral part
of KCPL's interest rate management, their incremental effect on
interest expense and cash flows is not significant.
The increase in miscellaneous interest charges in 1997 compared
to 1996 is primarily due to interest charges incurred on the $150
million of 8.3% preferred securities.
WOLF CREEK
Wolf Creek is one of KCPL's principal generating units
representing about 17% of its accredited generating capacity. The
plant's operating performance has remained strong, contributing about
26% of the annual mwh generation while operating at an average
capacity of 87% over the last three years. It has the lowest fuel
cost per MMBTU of any of KCPL's generating units.
The incremental operating, maintenance and replacement power
costs for planned outages are accrued evenly over the unit's operating
cycle, normally 18 months. As actual outage expenses are incurred,
the refueling liability and related deferred tax asset are reduced.
Wolf Creek's ninth refueling and maintenance outage, budgeted for
35 days, began in early October 1997 and was completed in December
1997 (58 days). The extended length of the ninth outage was caused by
several equipment problems, the most significant of which included:
failure of the fuel assembly gripper, failure of a residual heat
removal pump to start on demand, difficulties in declaring operable an
essential service water system and a reactor trip during startup.
Wolf Creek's eighth scheduled refueling and maintenance outage,
budgeted for 45 days, began in early February 1996 and was completed
in April 1996 (64 days). The eighth outage started one month early
when the plant was shut down after water flow from the cooling lake
was restricted by ice buildup on an intake screen. The extended
lengths of the outages were the primary reasons for the increases in
Wolf Creek related replacement power and operating and maintenance
expenses in 1997 and 1996 over 1995. Costs of the 1997 and 1996
outages were $6 million and $2 million in excess of the costs
estimated and accrued for the outages. Wolf Creek's tenth refueling
and maintenance outage is scheduled for the spring of 1999 and is
estimated to be a 40 day outage.
Wolf Creek's assets and operating expenses represent about 42%
and 19% of utility total assets and operating expenses, respectively.
Currently, no major equipment replacements are expected, but an
extended shut-down of Wolf Creek could have a substantial adverse
effect on KCPL's business, financial condition and results of
operations. Higher replacement power and other costs would be
incurred as a result. Although not expected, an unscheduled plant
shut-down could be caused by actions of the Nuclear Regulatory
Commission reacting to safety concerns at the plant or other similar
nuclear units. If a long-term shut-down occurred, the state
regulatory commissions could consider reducing rates by excluding the
Wolf Creek investment from rate base.
Ownership and operation of a nuclear generating unit exposes KCPL
to risks regarding the cost of decommissioning the unit at the end of
its life and to potential retrospective assessments and property
losses in excess of insurance coverage. These risks are more fully
discussed in the related sections of Notes 1 and 4 to the Consolidated
Financial Statements.
ENVIRONMENTAL MATTERS
KCPL's policy is to act in an environmentally responsible manner
and use the latest technology available to avoid and treat
contamination. We continually conduct environmental audits designed
to ensure compliance with governmental regulations and detect
contamination. However, these regulations are constantly evolving;
governmental bodies may impose additional or more rigid environmental
regulations that could require substantial changes to operations or
facilities.
The Clean Air Act Amendments of 1990 contain two programs
significantly affecting the utility industry. KCPL has spent about $5
million for the installation of continuous emission monitoring
equipment to satisfy the requirements under the acid rain provision.
The other utility-related program calls for a study of certain air
toxic substances. Based on the outcome of this study, regulation of
these substances, including mercury, could be required. We cannot
predict the likelihood of any such regulations or compliance costs.
In July 1997 the United States Environmental Protection Agency
(EPA) published new air quality standards for ozone and particulate
matter. Additional regulations implementing these new standards are
expected to be finalized in 1998. Without the implementation
regulations, the real impact of the standards on KCPL cannot be
determined. However, the impact on KCPL and other utilities who use
fossil fuels could be substantial. Under the new fine particulate
regulations EPA will begin a five-year study of fine particulate
emissions. Until this testing and review period has been completed,
KCPL cannot determine additional compliance costs, if any, associated
with the new particulate regulations.
In 1997 EPA also issued new proposed regulations on reducing
Nitrogen Oxide (NOx) emissions. Under the new regulations 22 states,
including Missouri but not Kansas, would be required to develop plans
to reduce NOx emissions. The new limits would go into effect in
either 2002 or 2004. The cost of equipment to reduce NOx emissions
could be substantial, however, until studies are completed on the
actual impact of the new regulations on KCPL the costs cannot be
determined.
At a December 1997 meeting in Kyoto, Japan, the Clinton
Administration supported changes to the International Global Climate
Change treaty which would require a seven percent reduction in United
States Carbon Dioxide (CO2) emissions below 1990 levels. President
Clinton has stated that this change in the treaty will not be
submitted to the U.S. Senate at this time where ratification is
uncertain. If future national restrictions on electric utility CO2
emissions are eventually required, the financial impact upon KCPL
could be substantial.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs using two
digits instead of four digits to define the applicable year. Computer
programs with date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations.
Through ongoing assessment of the Year 2000 Issue, we have
determined that it is necessary to modify or replace some of KCPL's
internal software so that its computer systems will properly utilize
dates beyond December 31, 1999. We believe that with the planned
modifications and conversions of KCPL's software, the Year 2000 Issue
can be mitigated. We will utilize both internal and external
resources to address the Year 2000 Issue. We plan to complete the
Year 2000 project by December 31, 1998. This will allow time for
additional compliance testing of the systems.
The cost of the Year 2000 project is being expensed as incurred
and is not material to KCPL's results of operations. However, there
is no guarantee that current cost estimates of the Year 2000 project
will not be exceeded. For the past several years, we have been
replacing older systems with new and innovative technologies that
place us in a stronger competitive position for the future. As a
result, the cost of the Year 2000 project has been lessened. Specific
factors that might cause costs to exceed estimates include, but are
not limited to, the availability and cost of appropriately trained
personnel, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
We have initiated formal communications with all of KCPL's large
suppliers and customers to evaluate KCPL's vulnerability to those
third parties' failure to remediate their own Year 2000 Issue.
However, there is no guarantee that third party systems on which
KCPL's systems rely will be timely converted, or that a failure to
convert, or a conversion that is incompatible with KCPL's systems,
would not have a material adverse effect on KCPL.
PROJECTED CONSTRUCTION EXPENDITURES
We are fully exploring alternatives to new construction. During
1995 we entered into an operating lease for a new 142 mw combustion
turbine, now scheduled to be placed in service during 1998. We have
also contracted to purchase capacity through fixed-price agreements
(see Note 4 to the Consolidated Financial Statements - Capacity
Purchase Commitments). Compared to the long-term fixed costs of
building new capacity, these contracts provide a cost-effective way of
meeting uncertain levels of demand growth, even though there are risks
associated with market price fluctuations.
Total utility capital expenditures, excluding allowance for funds
used during construction, were $125 million in 1997. The utility
construction expenditures are projected for the next five years as
follows:
Construction Expenditures
1998 1999 2000 2001 2002 Total
(millions)
Generating facilities $ 27 $ 34 $ 34 $13 $ 40 $148
Nuclear fuel 19 2 21 25 1 68
Transmission facilities 6 4 4 8 18 40
Distribution and
general facilities 54 53 53 49 45 254
Total $106 $ 93 $112 $95 $104 $510
This construction expenditure plan is subject to continual review
and change.
CAPITAL REQUIREMENTS AND LIQUIDITY
As of December 31, 1997, liquid resources of KCPL included cash
flows from operations, $300 million of registered but unissued
unsecured medium-term notes and $343 million of unused bank lines
of credit. The unused lines consisted of KCPL's short-term bank lines
of credit of $300 million and KLT's long-term revolving line of credit
of $43 million. Cash and cash equivalents increased by $51 million
from December 31, 1996 to December 31, 1997, primarily due to $21.5
million of proceeds from the sale of streetlights to the City of
Kansas City, Missouri at a minimal gain; the issuance of $150 million
of preferred securities (see Note 10 to the Consolidated Financial
Statements) and because expenditures during 1997 for certain
investments were restricted under the Western Resources merger
agreement.
KCPL continues to generate positive cash flows from operating
activities, although individual components of working capital will
vary with normal business cycles and operations including the timing
of receipts and payments.
Cash required to meet current tax liabilities has increased as
KCPL no longer receives the benefits of accelerated tax depreciation
on any significant generating plant assets. Accelerated depreciation
lowers tax payments in the earlier years of an asset's life while
increasing deferred tax liabilities; this relationship reverses in the
later years of an asset's life. KCPL's last significant generating
plant addition was the completion of Wolf Creek in 1985.
At December 31, 1997 coal inventory levels were at 75% of
targeted levels. This shortfall was due mainly to poor railroad
delivery performance throughout 1997. Such railroad related problems
are expected to continue at least through 1998. We are working with
KCPL's rail carriers to ensure an adequate coal supply and allow
recovery to targeted coal inventory levels.
Deferred debt issuance expenses and goodwill resulting from KLT's
acquisitions contributed to the increase in Other deferred charges on
the Consolidated Balance Sheets from December 31, 1996 to December 31,
1997. Other deferred credits increased due to an increase in Wolf
Creek decommissioning liabilities. Also, minority interests included
in Other deferred credits increased as KLT obtained controlling
interests in new companies in 1997.
Cash used in investing activities varies with the timing of
utility capital expenditures and KLT's purchases of investments and
nonutility properties. KLT completed several investments during 1997
increasing Investments and Nonutility Property on the Consolidated
Balance Sheet by approximately $100 million. These include a 12%
ownership interest in the largest fossil-fuel generator in Argentina
and a significant ownership interest in Digital Teleport, Inc. (DTI),
a St. Louis, Missouri, facilities-based provider of long-haul and
local telecommunications services. As part of the DTI transaction,
KLT converted a note receivable, with a balance at December 31, 1996,
of $9 million, to the investment in DTI.
Construction work in progress increased by $24 million from
December 31, 1996 to December 31, 1997, due to continued construction
on production projects and system software upgrades.
Cash provided by financing activities increased from December
1996 to December 1997 due to additional long-term borrowings. Long-
term debt, including current maturities, increased by $37 million from
December 31, 1996 to December 31, 1997, primarily due to additional
borrowings by KLT on its long-term revolving line of credit. As
discussed in Note 10 to the Consolidated Financial Statements, KCPL
Financing I, a wholly-owned subsidiary of KCPL, issued $150 million of
preferred securities in April 1997. The $53 million payment to
UtiliCorp, recorded as an expense, and KLT's purchases of investments
and nonutility properties were financed mostly by the preferred
securities and additional long-term borrowings. Cash used in Other
financing activities increased from 1996 to 1997 due primarily to the
costs of issuing the preferred securities which are being amortized
over 40 years.
KCPL's common dividend payout ratio was 137% in 1997, 94% in 1996
and 80% in 1995. The increase in the payout ratios for 1997 and 1996
from 1995 is due mainly to the significant merger related costs
expensed in both periods. The last time the common dividend payout
ratio was greater than 100% was 1992. The summer of 1992 was the
second coolest on record.
We expect to meet day-to-day operations, utility construction
requirements and dividends with internally-generated funds.
Uncertainties affecting KCPL's ability to meet these requirements with
internally-generated funds include the effect of inflation on
operating expenses, the level of mwh sales, regulatory actions, the
availability of generating units and compliance with future
environmental regulations (see Environmental Matters section). The
funds needed for the retirement of $462 million of maturing debt
through the year 2002 will be provided from operations, refinancings
or short-term debt. KCPL might issue additional debt and/or
additional equity to finance growth or take advantage of new
opportunities.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1997 1996 1995
(Thousands)
ELECTRIC OPERATING REVENUES $895,943 $903,919 $885,955
OPERATING EXPENSES
Operation
Fuel 134,509 140,505 139,371
Purchased power 59,247 52,455 38,783
Other 191,897 180,719 178,599
Maintenance 70,892 71,495 78,439
Depreciation 110,898 103,912 97,225
Income taxes 71,113 68,155 77,062
General taxes 93,297 97,248 96,821
Deferred Wolf Creek costs amortization 1,368 11,617 12,607
Total 733,221 726,106 718,907
OPERATING INCOME 162,722 177,813 167,048
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds
used during construction 2,407 2,368 2,279
Miscellaneous income 39,021 4,843 8,623
Miscellaneous deductions (118,442) (55,172)
(11,101)
Income taxes 63,034 36,402 10,259
Total (13,980) (11,559) 10,060
INCOME BEFORE INTEREST CHARGES 148,742 166,254 177,108
INTEREST CHARGES
Long-term debt 60,298 53,939 52,184
Short-term debt 1,382 1,251 1,189
Miscellaneous 12,843 4,840 3,112
Allowance for borrowed funds
used during construction (2,341) (1,947)
(1,963)
Total 72,182 58,083 54,522
Net Income 76,560 108,171 122,586
Preferred Stock
Dividend Requirements 3,789 3,790 4,011
Earnings Available for
Common Stock $72,771 $104,381 $118,575
Average Number of Common
Shares Outstanding 61,895 61,902 61,902
Basic and Diluted Earnings
per Common Share $1.18 $1.69 $1.92
Cash Dividends per
Common Share $1.62 $1.59 $1.54
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31
1997 1996 1995
(thousands)
Beginning Balance $455,934 $449,966 $426,738
Net Income 76,560 108,171 122,586
532,494 558,137 549,324
Dividends Declared
Preferred stock - at required rates 3,773 3,782 4,029
Common stock 100,269 98,421 95,329
Ending Balance $428,452 $455,934 $449,966
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31 December 31
1997 1996
ASSETS (thousands)
UTILITY PLANT, at original cost
Electric $3,502,796 $3,472,607
Less-accumulated depreciation 1,314,154 1,238,187
Net utility plant in service 2,188,642 2,234,420
Construction work in progress 93,264 69,577
Nuclear fuel, net of amortization of
$86,516 and $84,540 41,649 39,497
Total 2,323,555 2,343,494
REGULATORY ASSET - RECOVERABLE TAXES 123,000 126,000
INVESTMENTS AND NONUTILITY PROPERTY 345,126 231,874
CURRENT ASSETS
Cash and cash equivalents 74,098 23,571
Electric customer accounts receivable, net of
allowance for doubtful accounts
of $1,941 and $1,644 28,741 27,093
Other receivables 33,492 36,113
Fuel inventories, at average cost 13,824 19,077
Materials and supplies, at average cost 46,579 47,334
Deferred income taxes 648 2,737
Other 7,155 5,055
Total 204,537 160,980
DEFERRED CHARGES
Regulatory assets 30,017 37,747
Other deferred charges 31,798 14,417
Total 61,815 52,164
Total $3,058,033 $2,914,512
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statements) $2,051,489 $1,943,647
CURRENT LIABILITIES
Notes payable to banks 1,243 0
Current maturities of long-term debt 74,180 26,591
Accounts payable 57,568 55,618
Accrued taxes 1,672 18,443
Accrued interest 22,360 21,054
Accrued payroll and vacations 23,409 25,558
Accrued refueling outage costs 1,664 7,181
Other 15,068 11,980
Total 197,164 166,425
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 638,679 643,189
Deferred investment tax credits 63,257 67,107
Other 107,444 94,144
Total 809,380 804,440
COMMITMENTS AND CONTINGENCIES (note 4)
Total $3,058,033 $2,914,512
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
1997 1996 1995
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $76,560 $108,171 $122,586
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 110,898 103,912 97,225
Amortization of:
Nuclear fuel 16,836 16,094 14,679
Deferred Wolf Creek costs 1,368 11,617 12,607
Other 8,223 5,507 8,152
Deferred income taxes (net) 4,780 (8,662)
(3,268)
Investment tax credit amortization
and reversals (3,850) (4,163)
(11,570)
Deferred storm costs 0 (8,885) 0
Allowance for equity funds used
during construction (2,407) (2,368)
(2,279)
Other operating activities (Note 1) (3,924) (4,314)
(14,955)
Net cash from operating activities 208,484 216,909 223,177
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (124,734) (100,947)
(134,070)
Allowance for borrowed funds used
during construction (2,341) (1,947)
(1,963)
Purchases of investments (107,603) (35,362)
(56,759)
Purchases of nonutility property (15,733) (20,395) 0
Sale of streetlights 21,500 0 0
Other investing activities (8,902) (931) 9,046
Net cash from investing activities (237,813) (159,582)
(183,746)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of mandatorily redeemable
Preferred Securities 150,000 0 0
Issuance of long-term debt 66,292 135,441 111,055
Repayment of long-term debt (28,832) (74,230)
(33,428)
Net change in short-term borrowings 1,243 (19,000)
(13,000)
Dividends paid (104,042) (102,203)
(99,358)
Other financing activities (4,805) (2,154) 3,473
Net cash from financing activities 79,856 (62,146)
(31,258)
NET CHANGE IN CASH AND CASH
EQUIVALENTS 50,527 (4,819) 8,173
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 23,571 28,390 20,217
CASH AND CASH EQUIVALENTS
AT END OF YEAR $74,098 $23,571 $28,390
CASH PAID DURING THE YEAR FOR:
Interest (net of amount capitalized) $71,272 $52,457 $48,200
Income taxes $22,385 $58,344 $67,053
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31 December 31
1997 1996
(thousands)
COMMON STOCK EQUITY
Common stock-150,000,000 shares authorized
without par value-61,908,726 shares issued,
stated value $449,697 $449,697
Retained earnings (see statements) 428,452 455,934
Unrealized gain on securities available for sale 1,935 6,484
Capital stock premium and expense (1,664)
(1,666)
Total 878,420 910,449
CUMULATIVE PREFERRED STOCK
$100 Par Value
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 Value
4.75%* - 500,000 shares issued 50,000 50,000
$100 Par Value - Redeemable
4.00% 62 62
Total 89,062 89,062
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY KCPL
SUBORDINATED DEBENTURES 150,000 0
LONG-TERM DEBT (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 1997-2008, 6.92% and
6.81% weighted-average rate at December 31 407,500 468,500
4.24%* Environmental Improvement Revenue
Refunding Bonds due 2012-23 158,768 158,768
Guaranty of Pollution Control Bonds
4.31%* due 2015-17 196,500 196,500
Subsidiary Obligations
Affordable Housing Notes due 2000-06, 8.48%
and 8.51% weighted-average rate at
December 31 61,207 65,368
Bank Credit Agreement due 1999, 6.67% and
6.78% weighted-average rate at December 31 107,500 55,000
Other Long-Term Notes 2,532 0
Total 934,007 944,136
Total $2,051,489 $1,943,647
* Variable rate securities, weighted-average rate as of December 31, 1997
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Kansas City Power & Light Company is a medium-sized electric
utility with more than 445,000 customers at year-end in western
Missouri and eastern Kansas. About 95% of KCPL's retail revenues are
from the Kansas City metropolitan area, an agribusiness center and
major regional center for wholesale, retail and service companies.
About two-thirds of KCPL's retail sales are to Missouri customers, the
remainder to Kansas customers.
The consolidated financial statements include the accounts of
Kansas City Power & Light Company and KLT Inc. (KLT), a wholly-owned,
nonutility subsidiary. The consolidated entity is referred to as KCPL.
KLT was formed in 1992 as a holding company for various nonregulated
business ventures. Existing ventures include investments in domestic
and international nonregulated power production, energy services, oil
and gas development and production, telecommunications, telemetry
technology and affordable housing limited partnerships. Currently,
the electric utility accounts for about 89% of consolidated assets and
about 92% of net income. Intercompany balances and transactions have
been eliminated. KLT's revenues and expenses have been classified as
Other Income and (Deductions) and Interest Charges in the income
statement.
The accounting records conform to the accounting standards
prescribed by the Federal Energy Regulatory Commission (FERC) and
generally accepted accounting principles. These standards require the
use of estimates and assumptions that affect amounts reported in the
financial statements and the disclosure of commitments and
contingencies.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid investments
with original maturities of three months or less.
Derivative Financial Instruments
We use interest rate swap and cap agreements to reduce the impact
of changes in interest rates on variable-rate debt.
Interest rate swap agreements effectively fix the interest rates
on a portion of KCPL's variable-rate debt. Interest rate caps limit
the interest rate on a portion of KCPL's variable-rate debt by setting
a maximum rate. The costs of rate caps are paid annually and included
in interest expense. Any difference paid or received due to these
agreements is recorded as an adjustment to interest expense.
These agreements are not marked to market value as they are used
only to manage interest expense and the intent is to hold them until
their termination date. We do not use derivative financial
instruments for trading or other speculative purposes.
Fair Value of Financial Instruments
The stated values of financial instruments as of December 31,
1997 and 1996, approximated fair market values. KCPL's incremental
borrowing rate for similar debt was used to determine fair value if
quoted market prices were not available.
Securities Available for Sale
Certain investments in equity securities are accounted for as
securities available for sale in accordance with Financial Accounting
Standards Board (FASB) Statement No. 115 - Accounting for Certain
Investments in Debt and Equity Securities. This requires adjusting
the securities to market value with unrealized gains (or losses), net
of deferred income taxes, reported as a separate component of
shareholders' equity.
Investments in Affordable Housing Limited Partnerships
Through December 31, 1997, KLT had invested $100 million in
affordable housing limited partnerships. About $79 million of these
investments were recorded at cost; the equity method was used for the
remainder. Tax credits are recognized in the year generated. A
change in accounting principle relating to investments made after
May 19, 1995, requires limited partnership investments of more than 5%
to use the equity method. Of the investments recorded at cost,
$69 million exceed this 5% level but were made prior to May 19, 1995.
Utility Plant
Utility plant is stated at historical costs of construction.
These costs include taxes, an allowance for funds used during
construction (AFDC) and payroll-related costs including pensions and
other fringe benefits. Additions of, and replacements and
improvements to units of property are capitalized. Repairs of
property and replacements of items not considered to be units of
property are expensed as incurred (except as discussed under Wolf
Creek Refueling Outage Costs). When property units are retired or
otherwise disposed, the original cost, net of salvage and removal, is
charged to accumulated depreciation.
AFDC represents the cost of borrowed funds and a return on equity
funds used to finance construction projects. It is capitalized as a
cost of construction work in progress. AFDC on borrowed funds reduces
interest charges. AFDC on equity funds is shown as a noncash 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 8.6% for
1997, 8.5% for 1996 and 8.7% for 1995.
Depreciation is computed using the straight-line method over the
estimated lives of depreciable property based on rates approved by
state regulatory authorities. Average annual composite rates were
about 3.2% in 1997 compared with 3.1% in 1996 and 2.9% in 1995.
Wolf Creek Refueling Outage Costs
Forecasted incremental costs to be incurred during scheduled Wolf
Creek Generating Station (Wolf Creek) refueling outages are accrued
monthly over the unit's operating cycle, normally about 18 months.
Estimated incremental costs, which include operating, maintenance and
replacement power expenses, are based on budgeted outage costs and the
estimated outage duration. Changes to or variances from those
estimates are recorded when known or probable.
Nuclear Plant Decommissioning Costs
The Missouri Public Service Commission (MPSC) and the Kansas
Corporation Commission (KCC) require the owners of Wolf Creek to
submit an updated decommissioning cost study every three years. The
following table shows the decommissioning cost estimates and the
escalation rates and earnings assumptions approved by the MPSC in
January 1998 and the KCC in 1997. The decommissioning cost estimates
are based on the immediate dismantlement method and include the costs
of decontamination, dismantlement and site restoration. Plant
decommissioning is not expected to start before 2025.
KCC MPSC
Future cost of decommissioning:
Total Station $1.3 billion $1.8 billion
47% share $624 million $832 million
Current cost of decommissioning (in
1996 dollars):
Total Station $409 million $409 million
47% share $192 million $192 million
Annual escalation factor 3.60% 4.50%
Annual return on trust assets 6.80% 7.66%
KCPL contributes about $3 million annually to a tax-qualified
trust fund to be used to decommission Wolf Creek. These costs are
charged to other operation expenses and recovered in rates.
Contributions to the trust will remain consistent through 1999 and are
expected to increase slightly beginning in 2000. These funding levels
assume a certain return on trust assets. If the actual return on
trust assets is below the anticipated level, we believe a rate
increase will be allowed ensuring full recovery of decommissioning
costs over the remaining life of the unit. This assumes KCPL continues
to be regulated.
As of December 31, 1997 and 1996, the trust fund balance,
including reinvested earnings, was $40 and $31 million,
respectively. These amounts are reflected in Investments and
Nonutility Property. The related liabilities for decommissioning are
included in Deferred Credits and Other Liabilities - Other.
In 1996 FASB issued an Exposure Draft of a proposed Statement of
Financial Accounting Standards, Accounting for Certain Liabilities
Related to Closure or Removal of Long-Lived Assets, that addressed the
accounting for obligations arising from dismantlement, removal, site
reclamation, and decontamination of certain long-lived assets. In
November 1997 FASB decided to reconsider the scope of the statement.
The effective date of the statement is undecided. If current electric
utility industry accounting practices for such decommissioning costs
are changed: 1) annual decommissioning expenses could increase, and 2)
trust fund income from the external decommissioning trusts could be
reported as investment income. We are not able to predict what affect
those changes would have on results of operations, financial position,
or related regulatory practices until the final issuance of a revised
accounting guidance. However, we do not anticipate results of
operations to be significantly affected as long as KCPL is regulated.
Nuclear Fuel
Nuclear fuel is amortized to fuel expense based on the quantity
of heat produced for the generation of electricity. Under the Nuclear
Waste Policy Act of 1982, the Department of Energy (DOE)
is responsible for the permanent disposal of spent nuclear fuel. KCPL
pays the DOE a quarterly fee of one-tenth of a cent for each
kilowatt-hour of net nuclear generation delivered and sold for future
disposal of spent nuclear fuel. These disposal costs are charged to
fuel expense and recovered through rates.
In 1996 a U.S. Court of Appeals issued a decision that the
Nuclear Waste Policy Act unconditionally obligated the DOE to begin
accepting spent fuel for disposal in 1998. In late 1997 the same
court issued another decision precluding the DOE from concluding that
its delay in accepting spent fuel is "unavoidable" under its contracts
with utilities due to lack of a repository or interim storage
authority. By year-end 1997 KCPL and other utilities had petitioned
the DOE for authority to suspend payments of their quarterly fees
until such time as the DOE begins accepting spent fuel. In January
1998 the DOE denied the utilities' petition. The utilities intend to
appeal that decision.
A permanent disposal site may not be available for the industry
until 2010 or later, although an interim facility may be available
earlier. Under current DOE policy, once a permanent site is
available, the DOE will accept spent nuclear fuel on a priority basis;
the owners of the oldest spent fuel will be given the highest
priority. As a result, disposal services for Wolf Creek may not be
available prior to 2016. Wolf Creek has an on-site, temporary storage
facility for spent nuclear fuel. Under current regulatory guidelines,
this facility can provide storage space until about 2005. Wolf Creek
has started plans to increase its on-site storage capacity for all
spent fuel expected to be generated by Wolf Creek through the end of
its licensed life in 2025.
Regulatory Assets
FASB Statement No. 71 - Accounting for Certain Types of
Regulation, applies to regulated entities whose rates are designed to
recover the costs of providing service. In accordance with this
statement, certain items that would normally be reflected in the
income statement are deferred on the balance sheet. These items are
then amortized as the related amounts are recovered from customers
through rates.
We recognize regulatory assets when allowed by a commission's
rate order or when it is probable, based on regulatory precedent, that
future rates will recover the amortization of the deferred costs. We
continuously monitor changes in market and regulatory conditions and
consider the effects of any changes in assessing the continued
applicability of FASB 71. If we were unable to apply FASB 71, the
unamortized balance of $153 million of KCPL's regulatory assets, net
of the related tax benefit, would be written off.
Deferred Wolf Creek Costs
The KCC and MPSC allowed continued construction accounting
for ratemaking purposes after Wolf Creek's 1985 commercial
in-service date. Certain other carrying costs were also
deferred. The deferrals were amortized and recovered in rates
from 1987 through June 1997.
Recoverable Taxes
See the following Income Taxes section.
Deferred Charges - Regulatory Assets
Amortization
December 31, Ending period
1997
(millions)
Coal contract termination costs $ 8.1 2002
1996 snowstorm costs 7.0 2001
Decommission and decontaminate
federal uranium enrichment facilities 6.0 2007
Premium on redeemed debt 6.9 2014
Other 2.0 2006
Total $ 30.0
Revenue Recognition
We use cycle billing and accrue estimated unbilled revenue at the
end of each reporting period.
Income Taxes
The balance sheet includes deferred income taxes for all
temporary differences between the tax basis of an asset or liability
and that reported in the financial statements. These deferred tax
assets and liabilities are determined using the tax rates scheduled by
the tax law to be in effect when the differences reverse.
Regulatory Asset - Recoverable Taxes mainly reflects the future
revenue requirements necessary to recover the tax benefits of existing
temporary differences previously passed through to customers.
Operating income tax expense is recorded based on ratemaking
principles. However, if the method used for the balance sheet were
reflected in the income statement, net income would remain the same.
Investment tax credits are deferred when utilized and amortized
to income over the remaining service lives of the related properties.
Environmental Matters
Environmental costs are accrued when it is probable a liability
has been incurred and the amount of the liability can be reasonably
estimated. We believe all appropriate costs related to environmental
matters have been recorded.
Basic and Diluted Earnings per Common Share Calculation
Basic and diluted earnings per common share of $1.18, $1.69, and
$1.92 for 1997, 1996 and 1995 were determined by dividing earnings
available for common stock of $72,771,000, $104,381,000 and
$118,575,000 by the average number of shares outstanding of 61.9
million. Derivation of earnings available for common stock is
reflected on the Consolidated Statements of Income.
Consolidated Statements of Cash Flows - Other Operating Activities
1997 1996 1995
Cash flows affected by changes in: (thousands)
Receivables $ 973 $ 1,462 $(17,551)
Fuel inventories 5,253 3,026 (5,533)
Materials and supplies 755 (159) (2,222)
Accounts payable 1,950 3,112 (20,980)
Accrued taxes (16,771) (21,283) 15,042
Accrued interest 1,306 4,148 4,697
Wolf Creek refueling outage
accrual (5,517) (6,382) 11,443
Pension and postretirement
benefit obligations (2,245) (84) (4,176)
Other 10,372 11,846 4,325
Total $ (3,924) $ (4,314) $(14,955)
2. PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Pension Plans
KCPL has defined benefit pension plans for its employees,
including officers. Benefits under these plans reflect the employees'
compensation, years of service and age at retirement. KCPL has
satisfied the minimum funding requirements under the Employee
Retirement Income Security Act of 1974.
Funded status of the plans:
December 31 1997 1996
(thousands)
Accumulated benefit obligation:
Vested $ 264,974 $ 247,264
Nonvested 7,978 6,526
Total $ 272,952 $ 253,790
Determination of plan assets less obligations:
Fair value of plan assets (a) $ 423,331 $ 363,285
Projected benefit obligation (b) 334,017 307,050
Difference $ 89,314 $ 56,235
Reconciliation of difference:
Accrued trust liability $ (11,349) $ (13,645)
Unrecognized transition obligation 8,469 10,541
Unrecognized net gain 96,662 63,022
Unrecognized prior service cost (4,468) (3,683)
Difference $ 89,314 $ 56,235
(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 weighted-average discount rates of 7.5% in 1997 and 8.0%
in 1996; and increases in future salary levels of 4% to 5% in
1997 and 1996.
Components of provisions for pensions:
1997 1996 1995
(thousands)
Service cost $ 8,427 $ 8,164 $ 6,414
Interest cost on projected benefit
obligation 24,258 23,379 22,593
Actual return on plan assets (75,435) (40,831) (50,108)
Other 48,090 15,347 25,656
Net periodic pension cost $ 5,340 $ 6,059 $ 4,555
Long-term rates of return on plan assets of 8.5% to 9.25% were used.
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, certain postretirement
health care and life insurance benefits are provided for substantially
all retired employees.
We accrue the cost of postretirement health care and life
insurance benefits during an employee's years of service. These costs
are currently recovered through rates on an accrual basis. In 1995 we
began funding the year's overall net periodic postretirement benefit
cost, subject to maximum deductible limits for income tax purposes.
Reconciliation of postretirement benefits to amounts recorded in the
balance sheets:
December 31 1997 1996
(thousands)
Accumulated postretirement benefit
obligation (APBO) (a):
Retirees $ 20,464 $ 20,582
Fully eligible active plan participants 3,820 3,149
Other active plan participants 8,914 8,459
Total APBO 33,198 32,190
Fair value of plan assets (b) (4,970) (3,620)
Unrecognized transition obligation (17,616) (18,791)
Unrecognized net gain 2,424 3,255
Unrecognized prior service cost (632) (709)
Accrued postretirement benefit obligation
(included in Deferred Credits
and Other Liabilities - Other) $ 12,404 $ 12,325
(a) Based on weighted-average discount rates of 7.5% in 1997 and 8.0%
in 1996; and increases in future salary levels of 4% in 1997 and
1996.
(b) Plan assets are invested in certificates of deposit.
Net periodic postretirement benefit cost:
1997 1996 1995
(thousands)
Service cost $ 514 $ 574 $ 435
Interest cost on APBO 2,518 2,520 2,423
Amortization of unrecognized
transition obligation 1,174 1,174 1,175
Other (66) 6 (60)
Net periodic postretirement benefit cost $ 4,140 $ 4,274 $ 3,973
Actuarial assumptions include an increase in the annual health
care cost trend rate for 1998 of 9%, decreasing gradually over a three-
year period to its ultimate level of 6%. The health care plan
requires retirees to share in the cost when premiums exceed a certain
amount. Because of this provision, an increase in the assumed health
care cost trend rate by 1% per year would only increase the APBO as of
December 31, 1997, by about $554,000 and the combined service and
interest costs of the net periodic postretirement benefit cost for
1997 by about $57,000.
Stock Options
The exercise price of stock options granted equaled the market
price of KCPL's common stock on the grant date. One-half of all
options granted vest one year after the grant date, the other half
vest two years after the grant date. An amount equivalent to the
quarterly dividends paid on KCPL's common stock shares (dividend
equivalents) accrues on the options for the benefit of option holders.
The option holders are entitled to stock for their accumulated
dividend equivalents only if they exercise their option when the
market price is above the exercise price. Unexercised options expire
ten years after the grant date.
KCPL follows Accounting Principles Board Opinion 25 - Accounting
for Stock Issued to Employees and related Interpretations in
accounting for this plan. Because of the dividend provision, we
expensed $1.2, $1.4 and $1.0 million for 1997, 1996 and 1995,
respectively. The expense includes accumulated and reinvested
dividends plus the appreciation in stock price since the grant date.
If the stock price decreases below the exercise price, the cumulative
expense related to those options is reversed.
FASB Statement No. 123 - Accounting for Stock-Based Compensation
requires certain disclosures regarding expense and value of options
granted using the fair-value method even though KCPL follows APB
Opinion 25. The disclosures have not been made since we have expensed
approximately the same amount as required by FASB 123. For options
outstanding at December 31, 1997, exercise prices range from $20.625
to $26.188 and the weighted-average remaining contractual life is 6.6
years.
Stock option activity over the last three years is summarized below:
1997 1996 1995
shares price* shares price* shares price*
Outstanding at January 1 298,875 $22.96 266,125 $22.14 197,375 $21.87
Granted --- -- 59,000 26.19 68,750 23.06
Exercised (33,625) 21.94 (26,250) 22.27 --- --
Outstanding at December 31 265,250 $23.12 298,875 $22.96 266,125 $22.18
Exercisable as of
December 31 235,750 $22.73 206,500 $22.02 162,813 $22.14
*weighted-average exercise price
3. INCOME TAXES
Income tax expense consisted of the following:
1997 1996 1995
(thousands)
Current income taxes:
Federal $2,801 $35,816 $69,697
State 4,348 8,762 11,944
Total 7,149 44,578 81,641
Deferred income taxes, net:
Federal 4,108 (7,441) (3,152)
State 672 (1,221) (116)
Total 4,780 (8,662) (3,268)
Investment tax credit amortization
and reversals (3,850) (4,163) (11,570)
Total income tax expense $8,079 $31,753 $66,803
KCPL's effective income tax rates differed from the statutory federal
rates mainly due to the following:
1997 1996 1995
Federal statutory income tax rate 35.0% 35.0% 35.0%
Differences between book and tax
depreciation not normalized 3.7 (0.4) 1.2
Amortization of investment tax credits (4.5) (3.0) (2.5)
Income tax credits (26.0) (9.1) (2.3)
State income taxes 3.9 3.5 4.1
Other (2.6) (3.3) (0.2)
Effective income tax rate 9.5% 22.7% 35.3%
The tax effects of major temporary differences resulting in deferred
tax assets and liabilities in the balance sheets are as follows:
December 31 1997 1996
(thousands)
Plant related $ 558,629 $ 562,287
Recoverable taxes 48,000 49,000
Other 31,402 29,165
Net deferred income tax liability $ 638,031 $ 640,452
The net deferred income tax liability consisted of the following:
December 31 1997 1996
(thousands)
Gross deferred income tax assets $ (61,358) $ (60,979)
Gross deferred income tax liabilities 699,389 701,431
Net deferred income tax liability $ 638,031 $ 640,452
4. COMMITMENTS AND CONTINGENCIES
Nuclear Liability and Insurance
Liability Insurance
The Price-Anderson Act currently limits the combined public
liability of nuclear reactor owners to $8.9 billion for claims
that could arise from a single nuclear incident. The owners of
Wolf Creek (the Owners) carry the maximum available commercial
insurance of $0.2 billion. The remaining $8.7 billion balance is
provided by Secondary Financial Protection (SFP), an assessment
plan mandated by the Nuclear Regulatory Commission.
Under SFP, if there were a catastrophic nuclear incident
involving any of the nation's licensed reactors, the Owners would
be subject to a maximum retrospective assessment per incident of
up to $79 million ($37 million, KCPL's share). The Owners are
jointly and severally liable for these charges, payable at a rate
not to exceed $10 million ($5 million, KCPL's share) per incident
per year, excluding applicable premium taxes. The assessment,
most recently revised in 1993, is subject to an inflation
adjustment every five years based on the Consumer Price Index.
Property, Decontamination and Premature Decommissioning Insurance
The Owners also carry $2.8 billion ($1.3 billion, KCPL's share)
of property damage, decontamination and premature decommissioning
insurance for loss resulting from damage to the Wolf Creek
facilities. This insurance is provided by Nuclear Electric
Insurance Limited (NEIL).
In the event of an accident, insurance proceeds must first be used
for reactor stabilization and site decontamination. KCPL's share
of any remaining proceeds can be used for property damage restoration
and premature decommissioning costs. Premature decommissioning coverage
applies only if an accident at Wolf Creek exceeds $500 million in
property damage and decontamination expenses, and only after trust
funds have been exhausted (see Note 1 - Nuclear Plant Decommissioning
Costs).
Extra Expense Insurance - Including Replacement Power
The Owners also carry additional insurance from NEIL to cover
costs of replacement power and other extra expenses incurred in
the event of a prolonged outage resulting from accidental
property damage at Wolf Creek.
Retrospective Assessments
Under all NEIL policies, KCPL is subject to retrospective
assessments if NEIL losses, for each policy year, exceed the
accumulated funds available to the insurer under that policy.
The estimated maximum amount of retrospective assessments to KCPL
under the current policies could total about $9 million.
Other
In the event of a catastrophic loss at Wolf Creek, the
insurance coverage may not be adequate to cover property damage
and extra expenses incurred. Uninsured losses, to the extent not
recovered through rates, would be assumed by KCPL and could have
a material, adverse effect on KCPL's financial condition and
results of operations.
Nuclear Fuel Commitments
As of December 31, 1997, KCPL's portion of Wolf Creek nuclear
fuel commitments included $35 million for enrichment through 2003, $68
million for fabrication through 2025 and $10 million for uranium and
conversion through 2001.
Environmental Matters
KCPL's operations must comply with federal, state and local
environmental laws and regulations. The generation and transmission
of electricity uses, produces and requires disposal of certain
products and by-products, including polychlorinated biphenyl (PCBs),
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. This
liability extends to the current property owner as well as prior
owners since the time of contamination.
We continually conduct environmental audits designed to detect
contamination and ensure compliance with governmental regulations.
However, compliance programs needed to meet new and future
environmental laws and regulations governing water and air quality,
including carbon dioxide emissions, hazardous waste handling and
disposal, toxic substances and the effects of electromagnetic fields,
could require substantial changes to operations or facilities.
Coal Contracts
KCPL's share of coal purchased under existing contracts was $38,
$36 and $42 million in 1997, 1996 and 1995, respectively. Under these
coal contracts, KCPL's remaining share of purchase commitments totals
$91 million. Obligations for the years 1998 through 2002 total $33,
$20, $9, $9 and $9 million, respectively. The remainder of KCPL's
coal requirements will be fulfilled through spot market
purchases. KCPL has freight commitments for delivery of coal for the
next five years of approximately $20 million per year.
Leases
KCPL has a transmission line lease with another utility whereby,
with FERC approval, the rental payments can be increased by the
lessor. If this occurs, we can cancel the lease if we are able to
secure an alternative transmission path. Commitments under this lease
total $2 million per year and $52 million over the remaining life of
the lease if it is not canceled.
Rental expense for other leases including railcars, computer
equipment, buildings, transmission line and other items was $20 to
$22 million per year during the last three years. The remaining
rental commitments under these leases total $167 million. Obligations
for the years 1998 through 2002 average $15 million per year. Capital
leases are not material and are included in these amounts.
As the managing partner of three jointly-owned generating units,
we have entered into leases for railcars to serve those units. The
entire lease commitment is reflected in the above amounts although
about $2 million per year ($29 million total) will be reimbursed by
the other owners.
KCPL has a lease agreement for a combustion turbine. The lease
term expires in 1999. The lease is not included in the lease
commitments disclosed above as lease payments will not begin until
construction of the turbine is completed and accepted by KCPL. Rental
payments will be based on a variable London InterBank Offered Rate
(LIBOR) and will depend on the final capitalized cost. The operating
lease will be up to a $50 million commitment.
Purchased Capacity Commitments
We purchase capacity from other utilities and nonutility
suppliers. Purchased capacity gives us the option to purchase energy
if needed or when market prices are favorable. This provides a cost-
effective alternative to new construction. As of December 31, 1997,
contracts to purchase capacity total $248 million through 2016. During
1997, 1996 and 1995, capacity purchases were $26, $26 and $17 million,
respectively. For the years 1998 through 2002, these commitments
average $22 million per year. For each of the next five years, net
capacity purchases represent about 8% of KCPL's 1997 total available
capacity.
5. SECURITIES AVAILABLE FOR SALE
KLT held a $5.0 million investment in convertible preferred stock of
CellNet Data Systems, Inc. (CellNet). In September 1996 CellNet
completed a public offering triggering conversion of the preferred
stock into common stock. As a result of the conversion, the carrying
value of the investment at December 31, 1996 was adjusted to its
market value of $15.2 million. The $10.2 million increase in market
value over original cost resulted in an unrealized gain at December
31, 1996, of $6.5 million (net of deferred taxes of $3.7 million). At
December 31, 1997, the market value of the investment was $8.0 million
resulting in a decrease in the unrealized gain to $1.9 million (net of
deferred taxes of $1.1 million).
6. COSTANERA INVESTMENT
In 1997 KLT invested $46 million for a 12 percent ownership in the
largest fossil-fueled generator in Argentina. The investment is not adjusted
to fair value because the fair value of the acquired Class A stock is not
readily determinable. Because of a legally binding consortium and
stockholders contract requiring the Class A shareholders to authorize
the maximum dividend distribution, KLT accrued $3.4 million of estimated
dividends prior to actual declaration.
7. INTANGIBLE ASSETS
The application of purchase accounting for certain KLT
investments during 1997 resulted in $12 million of goodwill
recognition. These amounts are included in Other deferred charges on
the balance sheet and are being amortized over 10 to 15 years.
8. SALE OF ACCOUNTS RECEIVABLE
As of December 31, 1997 and 1996, an undivided interest in
$60 million of designated customer accounts receivable was sold with
limited recourse. Related costs of $3.6, $3.5 and $3.8 million for
1997, 1996 and 1995, respectively, were included in Other Income and
(Deductions) - Miscellaneous deductions.
9. SHORT-TERM BANK LINES OF CREDIT
As of December 31, 1997 and 1996, under minimal fee arrangements,
unused short-term bank lines of credit totaled $300 million and $280
million, respectively.
10. COMMON STOCK EQUITY, PREFERRED STOCK, REDEEMABLE PREFERRED STOCK
AND MANDATORILY REDEEMABLE PREFERRED SECURITIES
Common Stock Equity
KCPL has shares of common stock registered with the Securities
and Exchange Commission for a Dividend Reinvestment and Stock Purchase
Plan (the Plan). The Plan allows common shareholders, directors and
employees to purchase shares of the common stock by reinvesting
dividends or making optional cash payments. We are currently
purchasing shares for the Plan on the open market.
As of December 31, 1997 and 1996, KCPL held 35,811 and 12,907
shares of its common stock to be used for future distribution,
respectively. The cost of these shares is included in Investments and
Nonutility Property.
The Restated Articles of Consolidation contain a restriction
related to the payment of dividends in the event common equity falls
to 25% of total capitalization. If preferred stock dividends are not
declared and paid when scheduled, KCPL could not declare or pay common
stock dividends or purchase any common shares. If the unpaid
preferred stock dividends equal four or more full quarterly dividends,
the preferred shareholders, voting as a single class, could elect
members to the Board of Directors.
Preferred Stock and Redeemable Preferred Stock
Scheduled mandatory sinking fund requirements for the redeemable
4% Cumulative Preferred Stock are 1,600 shares per year. Shares
issued as of December 31 totaled 11,157 in 1997 and 12,757 in 1996.
Shares held by KCPL, at December 31, to meet future sinking fund
requirements totaled 10,534 in 1997 and 12,134 in 1996. The cost of
the shares held is reflected as a reduction of the capital account.
As of December 31, 1997, 0.4 million shares of $100 par
Cumulative Preferred Stock, 1.6 million shares of Cumulative No Par
Preferred Stock and 11 million shares of no par Preference Stock were
authorized. We have the option to redeem the $89 million Cumulative
Preferred Stock at prices approximating par or stated value.
Mandatorily Redeemable Preferred Securities
In April 1997 KCPL Financing I (Trust), a wholly-owned subsidiary
of KCPL, issued $150,000,000 of 8.3% preferred securities. The sole
asset of the Trust is the $154,640,000 principal amount of 8.3% Junior
Subordinated Deferrable Interest Debentures, due 2037, issued by KCPL.
The terms and interest payments on these debentures correspond to the
terms and dividend payments on the preferred securities. These
payments are reflected as Miscellaneous Interest Charges in the
Consolidated Statement of Income and are tax deductible by KCPL. We
may elect to defer interest payments on the debentures for a period up
to 20 consecutive quarters, causing dividend payments on the preferred
securities to be deferred as well. In case of a deferral, interest
and dividends will continue to accrue, along with quarterly
compounding interest on the deferred amounts. We may redeem all or a
portion of the debentures after March 31, 2002, requiring an equal
amount of preferred securities to be redeemed at face value plus
accrued and unpaid distributions. The back-up undertakings in the
aggregate provide a full and unconditional guarantee of amounts due on
the preferred securities.
11. LONG-TERM DEBT
General Mortgage Bonds and Unsecured Notes
KCPL is authorized to issue mortgage bonds under the General
Mortgage Indenture and Deed of Trust dated December 1, 1986, as
supplemented. The Indenture creates a mortgage lien on substantially
all utility plant.
As of December 31, 1997, $627 million general mortgage bonds were
pledged under the Indenture to secure the outstanding medium-term
notes and revenue refunding bonds.
KCPL is also authorized to issue up to $300 million in unsecured
medium-term notes under an indenture dated December 1, 1996. This
indenture prohibits KCPL from issuing additional general mortgage
bonds while any unsecured notes are outstanding. As of December 31,
1996 and 1997, no unsecured notes had been issued.
Interest Rate Swap and Cap Agreements
As of December 31, 1997, we had entered into four interest rate
swap agreements and two cap agreements to limit the interest rate on
$90 million of long-term debt. The swap agreements mature in 1998 and
effectively fix the interest rates on $50 million of variable-rate
debt to a weighted-average rate of 3.63% as of December 31, 1997. The
cap agreements limit the interest rate on $40 million of variable-rate
debt to 5.0% expiring in 1998.
As of December 31, 1996, we had entered into five interest rate
swap agreements and three cap agreements limiting the interest rate on
$120 million of long-term debt. The swap agreements mature from 1997
to 1998 and effectively fixed the interest rates on $60 million of
variable-rate debt to a weighted-average rate of 3.84% as of December
31, 1996. The cap agreements limited the interest rate on $60 million
of variable-rate debt to 5.0% expiring through 1998.
These swap and cap agreements are with several highly rated
financial institutions and simply limit KCPL's exposure to increases
in interest rates. They do not subject KCPL to any material credit or
market risks. The fair value of these agreements is immaterial and is
not reflected in the financial statements. Although derivatives are
an integral part of KCPL's interest rate management, their incremental
effect on interest expense for 1997 and 1996 was insignificant.
Subsidiary Obligations
KLT has a long-term revolving line of credit agreement for $150
million collateralized by the capital stock of KLT's direct
subsidiaries. The affordable housing notes are collateralized by the
affordable housing investments. At December 31, 1997, KLT has
approximately $3.5 million of notes related to the 1997 acquisition of
Simmons of which $950,000 are classified as current maturities. The
Simmons notes are collateralized by the Simmons stock.
Scheduled Maturities
Long-term debt maturities for the years 1998 through 2002 are
$74, $192, $67, $92 and $37 million, respectively.
12. JOINTLY-OWNED ELECTRIC UTILITY PLANTS
Joint ownership agreements with other utilities provide undivided
interests in utility plants as of December 31, 1997, as follows (in
millions of dollars):
Wolf Creek LaCygne Iatan
Unit Units Unit
KCPL's share 47% 50% 70%
Utility plant in service $ 1,344 $ 296 $ 244
Estimated accumulated depreciation
(production plant only) $ 391 $ 180 $ 137
Nuclear fuel, net $ 42 $ - $ -
KCPL's accredited capacity-megawatts 547 677 469
Each owner must fund its own portion of the plant's operating
expenses and capital expenditures. KCPL's share of direct expenses is
included in the appropriate operating expense classifications in the
income statement. Western Resources, Inc. (Western Resources) also
owns a 47% share of the Wolf Creek unit and a 50% share of the LaCygne
units (see Note 13).
13. AGREEMENT AND PLAN OF MERGER WITH WESTERN RESOURCES
On February 7, 1997, KCPL and Western Resources entered into an
Agreement and Plan of Merger (the Merger Agreement) to form a
strategic business combination. Western Resources first delivered
an unsolicited exchange offer to KCPL's Board of Directors during the
second quarter of 1996. This initial offer, subject to numerous
conditions, proposed the exchange of $28 (later increased to $31) of
Western Resources stock for each share of KCPL stock. After careful
consideration, KCPL's Board of Directors rejected both offers. In
July 1996 Western Resources commenced an exchange offer for KCPL
common stock. In late 1996 KCPL began discussing a possible merger
with Western Resources leading to the Merger Agreement.
In December 1997 KCPL canceled a previously scheduled special
meeting of shareholders to vote on the transaction because Western
Resources advised KCPL that its investment bankers, Salomon Smith
Barney, had indicated that it was unlikely that Salomon would be in a
position to issue a fairness opinion for the merger transaction on the
basis of the previously announced terms. The companies are currently
exploring other alternatives on which a transaction could be based.
It is impossible to predict the outcome of these efforts at the
present time.
In 1997 KCPL incurred and deferred $7 million of merger-related
costs. Because of the December 1997 announcement, generally accepted
accounting principles required these deferred merger costs to be
expensed even though discussions and negotiations of the transaction
continue.
The current Merger Agreement does not allow KCPL to increase its
common stock dividend. It also requires KCPL to redeem all
outstanding shares of cumulative preferred stock prior to completion
of any merger. The current Merger Agreement can be terminated on June
30, 1998, under certain circumstances, if shareholder approval has not
been obtained. However, if the current Merger Agreement is terminated
under certain other circumstances, a payment of $50 million will be
due Western Resources if, within two and one-half years following
termination, KCPL agrees to consummate a business combination with a
third party that made a proposal to combine prior to termination.
14. QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarter
1st 2nd 3rd 4th
(millions)
1997
Operating revenues $ 195 $ 215 $ 290 $ 196
Operating income 28 37 73 25
Net income (15) 24 58 10
Basic and diluted earnings
per common share $(0.26) $ 0.37 $ 0.92 $0.14
Quarter
1st 2nd 3rd 4th
(millions)
1996
Operating revenues $ 207 $ 226 $ 270 $ 201
Operating income 35 42 68 33
Net income 25 27 36 20
Basic and diluted earnings
per common share $ 0.38 $ 0.43 $ 0.57 $ 0.31
The quarterly data is subject to seasonal fluctuations with peak
periods occurring during the summer months.
In February 1997 KCPL paid UtiliCorp United Inc. (UtiliCorp) $53
million for agreeing to combine with Western Resources within two and
one-half years from the termination of KCPL's agreement to merge with
UtiliCorp. This agreement was terminated due to failure of KCPL
shareholders to approve the transaction with UtiliCorp. Additionally,
$7 million of merger-related costs were expensed in December 1997 (see
Note 13).
As a result of terminating the merger agreement with UtiliCorp,
$13 million in previously deferred merger costs and a $5 million
termination fee were expensed lowering 1996 third quarter earnings.
During 1996 about $13 million in costs to defend against Western
Resources' unsolicited exchange offer were expensed ($5 million during
the second quarter and $8 million during the third quarter).
15. SUBSEQUENT EVENT
On January 6, 1998 the KCC approved a settlement agreement
authorizing a $14.2 million revenue reduction and an increase in
depreciation expense of $2.8 million effective January 1, 1998.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Kansas City Power & Light Company:
We have audited the consolidated financial statements of Kansas
City Power & Light Company and Subsidiary listed in the index on page
48 of this Form 10-K. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Kansas City Power & Light Company and Subsidiary as of
December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
January 30, 1998
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
See General Note to Part III.
EXECUTIVE OFFICERS
See Part I, page 7, entitled "Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
See General Note to Part III.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
See General Note to Part III.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
General Note To Part III
Pursuant to General Instruction G to Form 10-K, the
other information required by Part III (Items 10, 11, and
12) of Form 10-K not disclosed above will be either
(i) incorporated by reference to the Definitive Proxy
Statement for KCPL's 1998 Annual Meeting of Shareholders,
filed with the Securities and Exchange Commission not later
than April 30, 1998, or (ii) included in an amendment to
this report filed with the Commission on Form 10-K/A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
Page
No.
____
FINANCIAL STATEMENTS
a. Consolidated Statements of Income and Consolidated 25
Statements of Retained Earnings for the years ended
December 31, 1997, 1996, and 1995
b. Consolidated Balance Sheets - December 31, 1997, and 1996 26
c. Consolidated Statements of Cash Flows for the years ended 27
December 31, 1997, 1996, and 1995
d. Consolidated Statements of Capitalization - December 31, 1997 28
and 1996
e. Notes to Consolidated Financial Statements 29
f. Report of Independent Accountants 46
EXHIBITS
Exhibit
Number Description of Document
_______ _______________________
2 *Amendment and Plan of Merger (Exhibit (2)-1 to Form 8-K dated
February 11, 1997).
3-a *Restated Articles of Consolidation of KCPL dated as of
May 5, 1992 (Exhibit 4 to Registration Statement, Registration
No. 33-54196).
3-b *By-laws of KCPL, as amended and in effect on August 6, 1996
(Exhibit 3(ii) to Form 10-Q dated September 30, 1996).
4-a *General Mortgage and Deed of Trust dated as of December 1,
1986, between KCPL and UMB Bank, n.a. (formerly United
Missouri Bank) of Kansas City, N.A., Trustee (Exhibit 4-bb
to Form 10-K for the year ended December 31, 1986).
4-b *Third Supplemental Indenture dated as of April 1, 1991, to
Indenture dated as of December 1, 1986 (Exhibit 4-aq to
Registration Statement, Registration No. 33-42187).
4-c *Fourth Supplemental Indenture dated as of February 15, 1992,
to Indenture dated as of December 1, 1986 (Exhibit 4-y to
Form 10-K for year ended December 31, 1991).
4-d *Fifth Supplemental Indenture dated as of
September 15, 1992, to Indenture dated as of
December 1, 1986 (Exhibit 4-a to Form 10-Q dated
September 30, 1992).
4-e *Sixth Supplemental Indenture dated as of
November 1, 1992, to Indenture dated as of
December 1, 1986 (Exhibit 4-z to Registration
Statement, Registration No. 33-54196).
4-f *Seventh Supplemental Indenture dated as of
October 1, 1993, to Indenture dated as of December 1,
1986 (Exhibit 4-a to Form 10-Q dated
September 30, 1993).
4-g *Eighth Supplemental Indenture dated as of
December 1, 1993, to Indenture dated as of December 1,
1986 (Exhibit 4 to Registration Statement,
Registration No. 33-51799).
4-h *Ninth Supplemental Indenture dated as of
February 1, 1994, to Indenture dated as of December 1,
1986 (Exhibit 4-h to Form 10-K for year ended
December 31, 1993).
4-i *Tenth Supplemental Indenture dated as of
November 1, 1994, to Indenture dated as of December 1,
1986 (Exhibit 4-I to Form 10-K for year ended
December 31, 1994).
4-j *Resolution of Board of Directors Establishing
3.80% Cumulative Preferred Stock (Exhibit 2-R to
Registration Statement, Registration No. 2-40239).
4-k *Resolution of Board of Directors Establishing
4% Cumulative Preferred Stock (Exhibit 2-S to
Registration Statement, Registration No. 2-40239).
4-l *Resolution of Board of Directors Establishing
4.50% Cumulative Preferred Stock (Exhibit 2-T to
Registration Statement, Registration No. 2-40239).
4-m *Resolution of Board of Directors Establishing
4.20% Cumulative Preferred Stock (Exhibit 2-U to
Registration Statement, Registration No. 2-40239).
4-n *Resolution of Board of Directors Establishing
4.35% Cumulative Preferred Stock (Exhibit 2-V to
Registration Statement, Registration No. 2-40239).
4-o *Certificate of Designation of Board of
Directors Establishing the $50,000,000 Cumulative
No Par Preferred Stock, Auction Series A (Exhibit 4-
a to Form 10-Q dated March 31, 1992).
4-p *Indenture for Medium-Term Note Program dated
as of April 1, 1991, between KCPL and The Bank of
New York (Exhibit 4-bb to Registration Statement,
Registration No. 33-42187).
4-q *Indenture for Medium-Term Note Program dated
as of February 15, 1992, between KCPL and The Bank
of New York (Exhibit 4-bb to Registration
Statement, Registration No. 33-45736).
4-r *Indenture for Medium-Term Note Program dated
as of November 15, 1992, between KCPL and The Bank
of New York (Exhibit 4-aa to Registration
Statement, Registration No. 33-54196).
4-s *Indenture for Medium-Term Note Program dated
as of November 17, 1994, between KCPL and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Smith Barney Inc. (Exhibit 4-s to
Form 10-K for year ended December 31, 1994).
4-t *Indenture for Medium-Term Note Program dated
as of December 1, 1996, between KCPL and The Bank
of New York (Exhibit 4 to Registration Statement,
Registration No. 333-17285).
4-u *Amended and Restated Declaration of Trust of
KCPL Financing I dated April 15, 1997 (Exhibit 4-a
to Form 10-Q for quarter ended March 31, 1997).
4-v *Indenture dated as of April 1, 1997 between
the Company and The First National Bank of Chicago,
Trustee (Exhibit 4-b to Form 10-Q for quarter ended
March 31, 1997).
4-w *First Supplemental Indenture dated as of
April 1, 1997 to the Indenture dated as of April 1,
1997 between the Company and The First National
Bank of Chicago, Trustee (Exhibit 4-c to Form 10-Q
for quarter ended March 31, 1997).
4-x *Preferred Securities Guarantee Agreement
dated April 15, 1997 (Exhibit 4-d to Form 10-Q for
quarter ended March 31, 1997).
10-a *Copy of Wolf Creek Generating Station Ownership
Agreement between Kansas City Power & Light
Company, Kansas Gas and Electric Company
and Kansas Electric Power Cooperative, Inc. (Exhibit
10-d to Form 10-K for the year ended December 31, 1981).
10-b *Copy of Receivables Purchase Agreement dated as of
September 27, 1989, between KCPL, Commercial
Industrial Trade-Receivables Investment Company and
Citicorp North America, Inc. (Exhibit 10-p to Form
10-K for year ended December 31, 1989).
10-c *Copy of Amendment to Receivables Purchase
Agreement dated as of August 8, 1991, between KCPL,
Commercial Industrial Trade-Receivables Investment
Company and Citicorp North America, Inc. (Exhibit
10-m to Form 10-K for year ended December 31,
1991).
10-d *Long-Term Incentive Plan (Exhibit 28 to
Registration Statement, Registration 33-42187).
10-e *Long- and Short-Term Incentive Compensation Plan,
dated January 1, 1997 (Exhibit 10-e to Form 10-K
for year ended December 31, 1996).
10-f *Copy of Indemnification Agreement entered into by
KCPL with each of its officers and directors
(Exhibit 10-f to Form 10-K for year ended
December 31, 1995).
10-g *Copy of Severance Agreement entered into by KCPL
with certain of its executive officers (Exhibit 10
to Form 10-Q dated June 30, 1993).
10-h *Copy of Amendment to Severance Agreement dated
January 15, 1996, entered into by KCPL with certain
of its executive officers (Exhibit 10-h to Form 10-
K dated December 31, 1995).
10-i *Copy of Amendment to Severance Agreement dated
January, 1997 entered into by KCPL with certain of
its executive officers (Exhibit 10-I to Form 10-K
for year ended December 31, 1996).
10-j *Copy of Supplemental Executive Retirement and
Deferred Compensation Plan (Exhibit 10-h to Form
10-K for year ended December 31, 1993).
10-k *Copy of $50 million Letter of Credit and
reimbursement agreement dated as of August 19,
1993, with The Toronto-Dominion Bank (Exhibit 10-i
to Form 10-K for year ended December 31, 1993).
10-l *Copy of $56 million Letter of Credit and
Reimbursement Agreement dated as of August 19,
1993, with Societe Generale, Chicago Branch
(Exhibit 10-j to Form 10-K for year ended
December 31, 1993).
10-m *Copy of $50 million Letter of Credit and
Reimbursement Agreement dated as of August 19,
1993, with The Toronto-Dominion Bank (Exhibit 10-k
to Form 10-K for year ended December 31, 1993).
10-n *Copy of $40 million Letter of Credit and
Reimbursement Agreement dated as of August 19,
1993, with Deutsche Bank AG, acting through its New
York and Cayman Islands Branches (Exhibit 10-l to
Form 10-K for year ended December 31, 1993).
10-o *Copy of Railcar Lease dated as of April 15, 1994,
between Shawmut Bank Connecticut, National
Association, and KCPL (Exhibit 10 to Form 10-Q for
period ended June 30, 1994).
10-p *Copy of Amendment No. 2 to Receivables Purchase
Agreement between KCPL and Ciesco L.P. and Citicorp
North America, Inc. (Exhibit 10 to Form 10-Q for
period ended September 30, 1994).
10-q *Copy of Railcar Lease dated as of January 31,
1995, between First Security Bank of Utah, National
Association, and KCPL (Exhibit 10-o to Form 10-K
for year ended December 31, 1994).
10-r *Copy of Lease Agreement dated as of October 18,
1995, between First Security Bank of Utah, N.A.,
and KCPL (Exhibit 10 to Form 10-Q for period ended
September 30, 1995).
12 Computation of Ratios of Earnings to Fixed
Charges.
23-a Consent of Counsel.
23-b Consent of Independent Accountants--Coopers &
Lybrand L.L.P.
24 Powers of Attorney.
27 Financial Data Schedules (filed electronically).
* Filed with the Securities and Exchange Commission as
exhibits to prior registration statements (except as
otherwise noted) and are incorporated herein by reference
and made a part hereof. The exhibit number and file number
of the documents so filed, and incorporated herein by
reference, are stated in parenthesis in the description of
such exhibit.
Copies of any of the exhibits filed with the Securities
and Exchange Commission in connection with this document may
be obtained from KCPL upon written request.
REPORTS ON FORM 8-K
A report on Form 8-K was filed on January 6, 1998, with
attached press release dated December 19, 1997, issued
jointly by KCPL and Western Resources, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Kansas City, and State
of Missouri on the 13th day of March, 1998.
KANSAS CITY POWER & LIGHT COMPANY
By /s/Drue Jennings
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
_________ _____ ____
Chairman of the Board and )
/s/Drue Jennings President (Principal )
(Drue Jennings) Executive Officer) )
)
Executive Vice President-Chief )
/s/Bernard J. Beaudoin Financial Officer (Principal )
(Bernard J. Beaudoin) Financial Officer) )
)
/s/Neil A. Roadman Controller (Principal )
(Neil A. Roadman) Accounting Officer) )
)
David L. Bodde* Director )
)
William H. Clark* Director ) March 13, 1998
)
Robert J. Dineen* Director )
)
Arthur J. Doyle* Director )
)
W. Thomas Grant II* Director )
)
George E. Nettels, Jr.* Director )
)
Linda Hood Talbott* Director )
)
Robert H. West* Director )
)
*By /s/ Drue Jennings
(Drue Jennings)
Attorney-in-Fact
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut, Kansas City, Missouri 64106-2124
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 556-2200
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 ( )
The number of shares outstanding of the registrant's Common stock at
May 4, 1998, was 61,872,915 shares.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
March 31 December 31
1998 1997
(thousands)
ASSETS
UTILITY PLANT, at original cost
Electric $3,517,951 $3,502,796
Less-accumulated depreciation 1,340,860 1,314,154
Net utility plant in service 2,177,091 2,188,642
Construction work in progress 99,741 93,264
Nuclear fuel, net of amortization of
$91,240 and $86,516 37,107 41,649
Total 2,313,939 2,323,555
REGULATORY ASSET - RECOVERABLE TAXES 123,000 123,000
INVESTMENTS AND NONUTILITY PROPERTY 366,821 345,126
CURRENT ASSETS
Cash and cash equivalents 19,566 74,098
Electric customer accounts receivable, net of
allowance for doubtful accounts
of $1,454 and $1,941 20,722 28,741
Other receivables 31,673 33,492
Fuel inventories, at average cost 16,001 13,824
Materials and supplies, at average cost 45,856 46,579
Deferred income taxes 1,658 648
Other 7,166 7,155
Total 142,642 204,537
DEFERRED CHARGES
Regulatory assets 28,751 30,017
Other deferred charges 31,099 31,798
Total 59,850 61,815
Total $3,006,252 $3,058,033
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statements) $2,049,307 $2,051,489
CURRENT LIABILITIES
Notes payable to banks 1,495 1,243
Commercial paper 2,000 0
Current maturities of long-term debt 23,168 74,180
Accounts payable 40,305 57,568
Accrued taxes 13,626 1,672
Accrued interest 20,663 22,360
Accrued payroll and vacations 24,021 23,409
Accrued refueling outage costs 4,259 1,664
Other 17,926 15,068
Total 147,463 197,164
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 640,671 638,679
Deferred investment tax credits 62,128 63,257
Other 106,683 107,444
Total 809,482 809,380
COMMITMENTS AND CONTINGENCIES
Total $3,006,252 $3,058,033
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
1
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
March 31 December 31
1998 1997
(thousands)
COMMON STOCK EQUITY
Common stock-150,000,000 shares authorized
without par value-61,908,726 shares issued,
stated value $449,697 $449,697
Retained earnings (see statements) 416,678 428,452
Unrealized gain on securities available for sale 4,122 1,935
Capital stock premium and expense (1,664)
(1,664)
Total 868,833 878,420
CUMULATIVE PREFERRED STOCK
$100 Par Value
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 Value
4.375%* - 500,000 shares issued 50,000 50,000
$100 Par Value - Redeemable
4.00% 62 62
Total 89,062 89,062
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY KCPL
SUBORDINATED DEBENTURES 150,000 150,000
LONG-TERM DEBT (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 1998-2008, 6.92% and
6.92% weighted-average rate 407,500 407,500
3.98%* Environmental Improvement Revenue
Refunding Bonds due 2012-23 158,768 158,768
Guaranty of Pollution Control Bonds
3.94%* due 2015-17 196,500 196,500
Subsidiary Obligations
Affordable Housing Notes due 2000-06, 8.34%
and 8.48% weighted-average rate 68,612 61,207
Bank Credit Agreement due 1999, 6.51% and
6.67% weighted-average rate 107,500 107,500
Other Long-Term Notes 2,532 2,532
Total 941,412 934,007
Total $2,049,307 $2,051,489
* Variable rate securities, weighted-average rate as of March 31, 1998
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
2
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31 1998 1997
(thousands)
ELECTRIC OPERATING REVENUES $195,635 $194,744
OPERATING EXPENSES
Operation
Fuel 35,697 34,922
Purchased power 8,231 11,246
Other 47,003 43,923
Maintenance 15,738 16,816
Depreciation 28,631 27,842
Income taxes 8,237 8,530
General taxes 22,168 22,692
Deferred Wolf Creek costs amortization 0 684
Total 165,705 166,655
OPERATING INCOME 29,930 28,089
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds
used during construction 933 260
Miscellaneous income 13,223 3,893
Miscellaneous deductions (20,900) (62,161)
Income taxes 9,747 30,233
Total 3,003 (27,775)
INCOME BEFORE INTEREST CHARGES 32,933 314
INTEREST CHARGES
Long-term debt 14,939 14,516
Short-term debt 91 839
Miscellaneous 4,190 875
Allowance for borrowed funds
used during construction (653) (784)
Total 18,567 15,446
Net Income (Loss) 14,366 (15,132)
Preferred Stock
Dividend Requirements 990 955
Earnings (Loss) Available for
Common Stock $13,376 ($16,087)
Average Number of Common
Shares Outstanding 61,873 61,896
Basic and Diluted earnings (loss)
per Common Share $0.22 ($0.26)
Cash Dividends per
Common Share $0.405 $0.405
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
3
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Twelve Months Ended March 31 1998 1997
(thousands)
ELECTRIC OPERATING REVENUES $896,834 $892,039
OPERATING EXPENSES
Operation
Fuel 135,284 144,654
Purchased power 56,232 49,716
Other 194,977 181,143
Maintenance 69,814 70,282
Depreciation 111,687 107,038
Income taxes 70,820 63,272
General taxes 92,773 95,579
Deferred Wolf Creek costs amortization 684 9,397
Total 732,271 721,081
OPERATING INCOME 164,563 170,958
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds
used during construction 3,080 1,968
Miscellaneous income 48,351 7,995
Miscellaneous deductions (77,181) (113,548)
Income taxes 42,548 60,414
Total 16,798 (43,171)
INCOME BEFORE INTEREST CHARGES 181,361 127,787
INTEREST CHARGES
Long-term debt 60,721 55,031
Short-term debt 634 1,972
Miscellaneous 16,158 4,609
Allowance for borrowed funds
used during construction (2,210) (2,341)
Total 75,303 59,271
Net Income (Loss) 106,058 68,516
Preferred Stock
Dividend Requirements 3,824 3,788
Earnings (Loss) Available for
Common Stock $102,234 $64,728
Average Number of Common
Shares Outstanding 61,889 61,900
Basic and Diluted earnings (loss)
per Common Share $1.65 $1.05
Cash Dividends per
Common Share $1.62 $1.605
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
4
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year to Date March 31 1998 1997
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 14,366 $ (15,132)
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 28,631 27,842
Amortization of:
Nuclear fuel 4,724 5,115
Deferred Wolf Creek costs 0 684
Other 2,272 1,362
Deferred income taxes (net) (258) (2,885)
Investment tax credit
amortization and reversals (1,129) (1,056)
Deferred merger costs 0 (4,787)
Kansas rate refund accrual 3,165 0
Allowance for equity funds used
during construction (933) (260)
Other operating activities (Note 2) 5,327 (799)
Net cash from operating activities 56,165 10,084
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (22,487) (27,402)
Allowance for borrowed funds used
during construction (653) (784)
Purchases of investments (19,230) (77,241)
Purchases of nonutility property (2,794) (1,611)
Other investing activities 2,884 (4,397)
Net cash from investing activities (42,280) (111,435)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 7,404 32,000
Repayment of long-term debt (51,011) (6,500)
Net change in short-term borrowings 2,252 102,361
Dividends paid (26,140) (26,028)
Other financing activities (922) 1,059
Net cash from financing activities (68,417) 102,892
NET CHANGE IN CASH AND CASH
EQUIVALENTS (54,532) 1,541
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 74,098 23,571
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $19,566 $25,112
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $20,380 $17,019
Income taxes $0 $0
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
5
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months Ended March 31 1998 1997
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 106,058 $ 68,516
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 111,687 107,038
Amortization of:
Nuclear fuel 16,445 20,012
Deferred Wolf Creek costs 684 9,397
Other 9,133 5,460
Deferred income taxes (net) 7,407 (17,278)
Investment tax credit
amortization and reversals (3,923) (4,195)
Deferred storm costs 0 (8,885)
Deferred merger costs 4,787 596
Kansas rate refund accrual 3,165 0
Allowance for equity funds used
during construction (3,080) (1,968)
Other operating activities (Note 2) 2,202 (23,825)
Net cash from operating activities 254,565 154,868
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (119,819) (98,800)
Allowance for borrowed funds used
during construction (2,210) (2,341)
Purchases of investments (49,592) (95,014)
Purchases of nonutility property (16,916) (22,006)
Sale of streetlights 21,500 0
Other investing activities (1,621) (3,524)
Net cash from investing activities (168,658) (221,685)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of mandatorily redeemable
Preferred Securities 150,000 0
Issuance of long-term debt 41,696 155,614
Repayment of long-term debt (73,343) (80,730)
Net change in short-term borrowings (98,866) 92,361
Dividends paid (104,154) (103,119)
Other financing activities (6,786) (946)
Net cash from financing activities (91,453) 63,180
NET CHANGE IN CASH AND CASH
EQUIVALENTS (5,546) (3,637)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 25,112 28,749
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $19,566 $25,112
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $74,633 $60,514
Income taxes $22,385 $53,272
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
6
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Twelve Months
Ended
March 31 March 31
1998 1997 1998
1997
(thousands)
Net income (loss) $ 14,366 $ (15,132) $ 106,058 $
68,516
Other comprehensive income (loss),
net of tax: (Note 3)
Net unrealized gain (loss) on
securities available for sale 2,187 (4,803) 2,441
1,681
Comprehensive Income (Loss) 16,553 (19,935) 108,499
70,197
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended Twelve Months
Ended
March 31 March 31
1998 1997 1998 1997
(thousands)
Beginning Balance $ 428,452 $ 455,934 $ 414,774 $
449,377
Net Income (Loss) 14,366 (15,132) 106,058
68,516
442,818 440,802 520,832
517,893
Dividends Declared
Preferred stock -
at required rates 1,081 960 3,894
3,772
Common stock 25,059 25,068 100,260
99,347
Ending Balance $416,678 $414,774 $416,678
$414,774
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
7
KANSAS CITY POWER & LIGHT COMPANY
Certain Forward-looking Information
Statements made in this report which are not based on historical
facts are forward-looking and, accordingly, involve risks and
uncertainties that could cause actual results to differ materially
from those discussed. Any forward-looking statements are intended to
be as of the date on which such a statement is made. In connection
with the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, we are providing the following important factors
that could cause actual results to differ materially from provided
forward-looking information. These important factors include: (a) the
Western Resources Inc. (Western Resources) merger (see Note 1 to the
Consolidated Financial Statements); (b) future economic conditions in
the regional, national and international markets; (c) state, federal
and foreign regulation and possible additional reductions in regulated
electric rates; (d) weather conditions; (e) financial market
conditions, including, but not limited to changes in interest rates;
(f) inflation rates; (g) increased competition, including, but not
limited to, the deregulation of the United States electric utility
industry, and the entry of new competitors; (h) ability to carry out
marketing and sales plans; (i ) ability to achieve generation planning
goals and the occurrence of unplanned generation outages; (j) nuclear
operations; (k) ability to enter new markets successfully and
capitalize on growth opportunities in nonregulated businesses, and (l)
adverse changes in applicable laws, regulations or rules governing
environmental, tax or accounting matters. This list of factors may
not be all inclusive since it is not possible for us to predict all
possible factors.
Notes to Consolidated Financial Statements
In management's opinion, the consolidated interim financial
statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of
operations for the interim periods presented. These statements and
notes should be read in connection with the financial statements and
related notes included in our 1997 annual report on Form 10-K.
1. AMENDED AND RESTATED PLAN OF MERGER WITH WESTERN RESOURCES
Western Resources, Inc. (Western Resources) delivered an
unsolicited exchange offer and an amended offer to KCPL's Board of
Directors during the second quarter of 1996. After careful
consideration, KCPL's Board of Directors rejected both offers. In
July 1996 Western Resources commenced an exchange offer for KCPL
Common Stock. In late 1996 KCPL began discussing a possible merger
with Western Resources leading to a February 7, 1997, agreement.
In December 1997 KCPL canceled its previously scheduled special
meeting of shareholders to vote on the transaction because Western
Resources advised KCPL that its investment bankers, Salomon Smith
Barney, had indicated that it was unlikely that Salomon would be in a
position to issue a fairness opinion for the merger transaction on the
basis of the February 7, 1997, agreement. During 1997 KCPL incurred
and deferred $7 million of merger-related costs which were expensed in
December 1997.
On March 18, 1998, KCPL and Western Resources entered into an
Amended and Restated Agreement and Plan of Merger (Amended Agreement).
This Amended Agreement provides for the combination of the regulated
electric utilities of KCPL and Western Resources into Westar Energy, a
new company, using purchase accounting. Westar Energy will be owned
approximately 80.1% by Western Resources and approximately 19.9% by
KCPL shareholders. At closing, KCPL shareholders will receive for
every share of KCPL Common Stock one share of Westar Energy Common
Stock and a fraction of a share of Western Resources Common Stock
valued at $23.50 if
8
the Western Resources Index Price (aggregate of
the average high and low sales prices of Western Resources Common
Stock over a 20-day trading period ending the tenth trading day prior
to closing) is not greater than $47.00 or less than $38.28. If
Western Resources Index Price is above $47.00 or below $38.28, the
value of the Western Resources Common Stock to be issued to KCPL
shareholders in the merger is subject to a collar and will increase
or decrease, respectively. The value per share of Westar Energy
Common Stock to be issued to KCPL shareholders in connection with the
contemplated transactions is estimated to be in the range of $10 to
$12 per share based on current market conditions. Since Westar Energy
will be a newly formed entity with no trading history, there can be no
assurance that Westar Energy will trade at such levels.
The transaction is subject to several closing conditions,
including approval by each company's shareholders, approval by a
number of regulatory and governmental agencies, confirmation from
Kansas tax authorities that no sales or use tax is payable in
connection with the proposed transactions and dissenting KCPL common
shares constitute less than 5.5% of outstanding shares. If shareholder
approval is not received by both companies by August 31, 1998, either
party may terminate the Amended Agreement. If the merger has not been
closed by December 31, 1999, either party may terminate the Amended
Agreement as long as they did not contribute to the delay. If Western
Resources Index Price is less than or equal to $29.78 five trading
days prior to closing, either party can terminate this Amended
Agreement.
The Amended Agreement allows the KCPL Board discretion to make
changes (including increases) in the KCPL Common Stock dividend
consistent with past practice exercising good business judgment. It
also requires KCPL to redeem all outstanding shares of cumulative
preferred stock prior to consummation of the proposed transactions. If
the Amended Agreement is terminated under certain other circumstances
and KCPL, within two and one-half years following termination, agrees
to consummate a business combination with a third party that made a
proposal to combine prior to termination, a payment of $50 million
will be due Western Resources. Under certain circumstances, if KCPL
determines not to consummate its merger into Westar Energy due to its
inability to receive a favorable tax opinion from its legal counsel,
it must pay Western Resources $5 million. Western Resources will pay
KCPL $5 million to $35 million if the Amended Agreement is terminated
and all closing conditions are satisfied other than conditions
relating to Western Resources receiving a favorable tax opinion from
its legal counsel, favorable statutory approvals or an exemption from
the Public Utility Holding Company Act of 1935.
2. CONSOLIDATED STATEMENTS OF CASH FLOWS - OTHER OPERATING ACTIVITIES
Three Months Twelve Months
Ended Ended
1998 1997 1998 1997
Cash flows affected by changes (thousands)
in:
Receivables $9,838 $25,895 $(15,084) $9,547
Fuel inventories (2,177) 1,360 1,716 (697)
Materials and supplies 723 37 1,441 (1,625)
Accounts payable (17,263)(18,873) 3,560 (15,296)
Accrued taxes 11,954 (7,356) 2,539 (30,182)
Accrued interest (1,697) (1,191) 800 (1,928)
Wolf Creek refueling outage
accrual 2,595 2,099 (5,021) 8,723
Pension and postretirement
benefit obligations (1,549) (532) (3,262) (97)
Other 2,903 (2,238) 15,513 7,730
Total $5,327 $ (799) $2,202 $(23,825)
9
3. ACCOUNTING CHANGES
Change in Accounting Estimate
In 1998 KCPL adopted the American Institute of Certified Public
Accountants Statement of Position (SOP) 98-1 -- Accounting for the
Costs of Computer Software Developed or Obtained For Internal Use.
KCPL was generally in conformance with this SOP prior to adoption in
regards to external direct costs and interest costs incurred in the
development of computer software for internal use. This SOP also
provides that once the capitalization criteria of the SOP have been
met, payroll and payroll-related costs for employees who are directly
associated with and who devote time to the internal-use computer
software project should be capitalized.
Costs capitalized in accordance with SOP 98-1 will be amortized
on a straight-line basis over estimated service lives of 5 to 10
years. The effect of adopting SOP 98-1 for the three-months ended
March 31, 1998, is an increase of net income of approximately $600,000
($0.01 per share).
Comprehensive Income (Loss)
In 1998 KCPL adopted Financial Accounting Standards Board
Statement No. 130 -- Reporting Comprehensive Income which establishes
standards for reporting of comprehensive income and its components.
4. SECURITIES AVAILABLE FOR SALE
Certain investments in equity securities are accounted for as
securities available for sale and adjusted to market value with
unrealized gains (or losses), net of deferred income taxes, reported
as a separate component of comprehensive income and common stock
equity.
KLT Inc. (KLT), a wholly-owned subsidiary of KCPL, has a $5
million investment in CellNet Data Systems, Inc. This investment is
held as securities available for sale. Unrealized gains applicable to
this investment of $4.1 million, net of $2.3 million deferred income
taxes, at March 31, 1998, increased from $1.9 million, net of $1.1
million deferred income taxes, at December 31, 1997.
5. CAPITALIZATION
KCPL is authorized to issue up to $300 million in unsecured
medium-term notes under an indenture dated December 1, 1996. As of
March 31, 1998, no unsecured medium-term notes had been issued.
KCPL Financing I (Trust), a wholly-owned subsidiary of Kansas
City Power & Light Company, has previously issued $150,000,000 of 8.3%
preferred securities. The sole asset of the Trust is the $154,640,000
principal amount of 8.3% Junior Subordinated Deferrable Interest
Debentures, due 2037, issued by KCPL.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATUS OF MERGER
See Note 1 to the Consolidated Financial Statements as to the
current status of the merger agreement with Western Resources Inc.
(Western Resources) including the Amended and Restated Agreement and
Plan of Merger (Amended Merger Agreement) dated March 18, 1998. In
December 1996 the Federal Energy Regulatory Commission (FERC) issued a
statement concerning electric utility mergers. Under the statement,
companies must demonstrate that their merger does not adversely affect
competition or wholesale rates. As remedies, FERC may consider a
range of conditions including transmission upgrades, divestitures of
generating assets or formation of independent system operators.
REGULATION AND COMPETITION
As competition develops throughout the electric utility industry,
we are positioning Kansas City Power & Light Company (KCPL) to excel
in an open market. We are improving the efficiency of KCPL's core
utility operations, lowering prices and offering new services. In
particular, value-added services for large energy users can include
contracts for natural gas commodities.
Competition in the electric utility industry was accelerated with
the National Energy Policy Act of 1992. This Act gives FERC the
authority to require electric utilities to provide transmission line
access to independent power producers (IPPs) and other utilities
(wholesale wheeling). KCPL, already active in the wholesale wheeling
market, was one of the first utilities to receive FERC's approval of
an open-access tariff for wholesale wheeling transactions. In April
1996 FERC issued an order requiring all owners of transmission
facilities to adopt open-access tariffs and participate in wholesale
wheeling. We have made the necessary filings to comply with that
order.
FERC's April 1996 order has encouraged more movement toward
retail competition at the state level. An increasing number of states
have already adopted open access requirements for utilities' retail
electric service, allowing competing suppliers access to their retail
customers (retail wheeling). Many other states are actively
considering retail wheeling. In Kansas, the retail wheeling task
force has proposed a restructuring bill that would implement retail
competition on July 1, 2001. Some of the key points included in the
proposed bill are: 1) the Kansas Corporation Commission (KCC) will
determine the amount of under-utilized assets (stranded costs) each
utility is allowed to recover and 2) a unit charge per kwh will be
assessed to all customers for recovery of competitive transition costs
(these costs include stranded costs, other regulatory assets, nuclear
decommissioning, etc.). No retail wheeling bill has been passed in
the Kansas legislature in 1998. In Missouri, a legislative committee
has been formed to study the issue. The retail wheeling task force
formed by the Missouri Public Service Commission (MPSC) issued its
report in May 1998. The report identifies issues and various options
for the legislature to address.
Competition through retail wheeling could result in market-based
rates below current cost-based rates. This would provide growth
opportunities for low-cost producers and risks for higher-cost
producers, especially those with large industrial customers. Lower
rates and the loss of major customers could result in stranded costs
and place an unfair burden on the remaining customer base or
shareholders. Testimony filed in the merger case in Kansas for KCPL
indicated that stranded costs are approximately $1 billion. An
independent study prepared at the request of the KCC concluded that
there are no stranded costs. We cannot predict the extent that
stranded costs
11
will be recoverable in future rates. If an adequate
and fair provision for recovery of these lost revenues is not
provided, certain generating assets may have to be evaluated for
impairment and appropriate charges recorded against earnings. In
addition to lower profit margins, market-based rates could also
require generating assets to be depreciated over shorter useful lives,
increasing operating expenses.
Although Missouri and Kansas have not yet authorized retail
wheeling, we believe KCPL is positioned well to compete in an open
market with its diverse customer mix and pricing strategies. About
21% of KCPL's retail mwh sales are to industrial customers which is
below the utility industry average. KCPL has a flexible rate
structure with industrial rates that are competitively priced with
other companies in the region. In addition, long-term contracts are
in place or under negotiation for a large portion of KCPL's industrial
sales. Although there currently is no direct competition for retail
electric service within KCPL's service territory, it does exist within
the bulk power market, between alternative fuel suppliers and among
third-party energy management companies. Third-party energy
management companies are seeking to initiate relationships with large
users in an attempt to enhance their chances to directly supply
electricity if retail wheeling is authorized.
Increased competition could also force utilities to change
accounting methods. Financial Accounting Standards Board (FASB)
Statement No. 71 - Accounting for Certain Types of Regulation, applies
to regulated entities whose rates are designed to recover the costs of
providing service. An entity's operations could stop meeting the
requirements of FASB 71 for various reasons, including a change in
regulation or a change in the competitive environment for a company's
regulated services. For those operations no longer meeting the
requirements of regulatory accounting, regulatory assets would be
written off. KCPL's regulatory assets, totaling $152 million at March
31, 1998, will be maintained as long as FASB 71 requirements are met.
It is possible that competition could eventually have a
materially adverse affect on KCPL's results of operations and
financial position. Should competition eventually result in a
significant charge to equity, capital costs and requirements could
increase significantly.
NONREGULATED OPPORTUNITIES
KLT Inc. (KLT) is a wholly-owned subsidiary pursuing nonregulated
business ventures. Existing ventures include investments in domestic
and international nonregulated power production, energy services, oil
and gas development and production, telecommunications, telemetry
technology and affordable housing limited partnerships.
KCPL had a total equity investment in KLT of $119 million as of
March 31, 1998, and KLT's net income for the three-month period ended
March 31, 1998, totaled $4.1 million. KLT's consolidated assets at
March 31, 1998, totaled $351 million. The growth of KLT accounts for
most of the increase in KCPL's consolidated investments and nonutility
property.
RESULTS OF OPERATIONS
Three-month three months ended March 31, 1998, compared
period: with three months ended March 31, 1997
Twelve-month twelve months ended March 31, 1998, compared
period: with twelve months ended March 31, 1997
12
EARNINGS OVERVIEW
Earnings Per Share (EPS)
For the Periods Ended March 31
Increase(decrease)
Merger excluding
1998 1997 Increase Expenses Merger Expenses
Three months $0.22 $(0.26) $0.48 $0.43 $ 0.05
ended
Twelve months $1.65 $ 1.05 $0.60 $0.67 $(0.07)
ended
EPS for the three-month period excluding merger expenses
increased primarily due to increased subsidiary income $0.04, reduced
cost of fuel $0.02, increased bulk power sales and continued load
growth. Partially offsetting these increases were the effects on EPS
of implementing rate reductions approved by the KCC effective January
1, 1998, ($0.03), increased interest expense related to the
mandatorily redeemable preferred securities ($0.03) and milder
weather.
EPS for the twelve-month period excluding merger expenses
decreased due to the implementation of rate reductions approved by the
KCC ($0.03), the effect of the rate reductions approved by the MPSC
($0.06), increased interest expense related to the mandatorily
redeemable preferred securities ($0.12) and increased depreciation
expense ($0.05). Partially offsetting these decreases are the effects
on EPS of an increase in subsidiary income $0.14, a decrease in
amortization expense $0.09 and continued load growth.
Merger expenses for the three-months ended March 31, 1998, were
$5.3 million ($0.09 per share). During the three-months ended March
31, 1997, KCPL paid $53 million ($0.52 per share) to UtiliCorp United
Inc. (UtiliCorp) for terminating the merger agreement with UtiliCorp
and announcing an agreement to combine with Western Resources. Merger
expenses for the twelve-months ended March 31, 1998, reduced EPS by
$0.16. For the twelve-months ended March 31, 1997, merger expenses
reduced EPS by $0.83 which includes $0.52 for the UtiliCorp payment
and $0.31 for other merger expenses.
13
MEGAWATT-HOUR (MWH) SALES AND OPERATING REVENUES
Sales and revenue data:
For the Periods Ended
March 31, 1998 versus March 31, 1997
------------------------------------
Three Months Twelve Months
--------------- ----------------
Mwh Revenues Mwh Revenues
---- --------- --- ----------
(revenue change in millions)
Retail:
Residential 1 % $ 1 5 % $ 13
Commercial 3 % 2 5 % 10
Industrial 1 % - (3)% (1)
Other - % (2) 2 % (5)
Kansas rate
refund accrual (3) (3)
--------- ----------
Total Retail 2 % (2) 3 % 14
Sales for resale:
Bulk power sales 13 % 3 (22)% (12)
Other 8 % - 14 % 1
--------- ----------
Total 1 3
Other revenues - 2
--------- ----------
Total electric
Operating Revenues $ 1 $ 5
--------- ----------
--------- ----------
The KCC approved a settlement agreement, effective January, 1,
1998, authorizing a $14.2 million revenue reduction and an increase in
depreciation expense of $2.8 million. When the KCC approves a new
rate design, which is anticipated near year-end 1998, KCPL will refund
the portion of the $14.2 million that has accrued between January 1,
1998 and the implementation date of the new rate design. Recorded
revenues for the three- and twelve-month periods are reduced by about
$3 million as a result of an accrual for this rate refund.
During 1996 the MPSC approved a stipulation and agreement
authorizing a $20 million revenue reduction in two phases and an
increase in depreciation and amortization expense by $9 million per
year. The decrease in revenues for the twelve-month period as a
result of this stipulation and agreement was about $6 million.
These rate reductions, combined with seasonally lower retail
sales in March 1998 versus December 1997, resulted in a lower accounts
receivable balance at March 31, 1998, compared with December 31, 1997.
Even though weather was milder for the three-month period, retail
mwh sales increased due to load growth. Load growth consists of
higher usage-per-customer as well as the addition of new customers.
Retail mwh sales for the current twelve-month period increased 3%
while retail revenues increased 2%. The MPSC and KCC rate reductions
discussed above decreased revenues for the twelve-month period while
retail mwh sales increased due to continued load growth.
14
KCPL has long-term sales contracts with certain major industrial
customers. These contracts are tailored to meet customers' needs in
exchange for their long-term commitment to purchase energy. Long-term
contracts are in place or under negotiation for a large portion of
KCPL's industrial sales.
Bulk power sales vary with system requirements, generating unit
and purchased power availability, fuel costs and the requirements of
other electric systems. Outages at the LaCygne 1 and 2 generating
units in the second quarter of 1997 and the extended 1997 Wolf Creek
outage contributed to lower bulk power mwh sales in the current twelve-
month period.
Total revenue per mwh sold varies with changes in rate tariffs,
the mix of mwh sales among customer classifications and the effect of
declining price per mwh as usage increases. An automatic fuel
adjustment provision is only included in sales for resale tariffs,
which apply to less than 1% of revenues.
Future mwh sales and revenues per mwh will also be affected by
national and local economies, weather and customer conservation
efforts. Competition, including alternative sources of energy such as
natural gas, co-generation, IPPs and other electric utilities, may
also affect future sales and revenue.
FUEL AND PURCHASED POWER
Combined fuel and purchased power expenses for the three-month
period decreased by 5% while total mwh sales (total of retail and
sales for resale) increased by 5%. This difference is largely
attributable to increased generation from LaCygne II, a low-cost, coal-
fired generating unit that was not available during February and March
1997 because of a planned outage. Purchased power decreased primarily
because of this additional generation. The cost per kwh for purchased
power is significantly higher than the cost per kwh of generation.
Combined fuel and purchased power expenses for the twelve-month
period decreased 1% while total mwh sales decreased 3%. This
difference is largely due to increased purchased power expenses and a
higher percentage of coal burned in the fuel mix.
Nuclear fuel costs per MMBTU remain substantially less than the
MMBTU price of coal. Nuclear fuel costs per MMBTU decreased 2% for
the twelve-month period. Nuclear fuel costs per MMBTU averaged 61% of
the MMBTU price of coal for the current and prior twelve-month
periods. We expect the current relationship and the price of nuclear
fuel to remain fairly constant through the year 2001. During the
current twelve-month period fossil plants represented about 75% of
generation and the nuclear plant about 25%. For the prior twelve-
month period, fossil plants represented about 72% of generation and
the nuclear plant about 28%.
The price of coal burned declined by 2% for the twelve-month
period. KCPL's coal procurement strategies continue to provide coal
costs below the regional average. We expect the cost of coal per
MMBTU to remain fairly constant through 2001.
OTHER OPERATION AND MAINTENANCE EXPENSES
Combined other operation and maintenance expenses for the three-
and twelve-month periods increased due largely to increases in other
power supply expenses and annual employee salary increases. The
twelve-month period also reflects increases in customer accounts
expenses and Wolf Creek non-fuel operations.
15
We continue to emphasize new technologies, improved work
methodology and cost control. We are improving system processes to
provide increased efficiencies and improved operations. Through the
use of cellular technology, a majority of customer meters are read
automatically.
DEPRECIATION AND AMORTIZATION
The increase in depreciation expense for the three- and twelve-
month periods reflects the implementation of the KCC settlement
agreement, the continued impact of the MPSC stipulation and agreement
and normal increases in depreciation from capital additions. The KCC
settlement agreement authorized an annual increase in depreciation
expense of $2.8 million. The MPSC stipulation and agreement
authorized a $9 million annual increase in depreciation expense.
INCOME TAXES
Operating income taxes for the twelve-month period increased by
approximately $8 million as the prior twelve-month period reflected
adjustments for the filing of the 1995 tax returns and the settlement
with the Internal Revenue Service regarding tax issues included in the
1985 through 1990 tax returns.
OTHER INCOME AND (DEDUCTIONS)
Miscellaneous Income
Miscellaneous income for the three- and twelve-month periods
includes increased revenues from non-utility and subsidiary
operations. Dividends on the investment in a fossil-fuel
generator in Argentina, revenues from a subsidiary in which KLT
obtained a controlling interest during 1997 and increased
revenues from oil and gas exploration contributed to the increase
in miscellaneous income from subsidiary operations.
Miscellaneous Deductions
Miscellaneous deductions for the three- and twelve-month periods
decreased primarily due to the $53 million payment to UtiliCorp
in the prior periods. During the three-months ended March 31,
1998, $5 million of merger expenses were incurred related to the
Amended Merger Agreement with Western Resources. In addition,
the twelve-months ended March 31, 1998, includes $7 million of
merger expenses related to the original merger agreement with
Western Resources. In addition to the $53 million payment to
UtiliCorp, the prior twelve-month period included $31 million in
other merger costs. These costs consist of $13 million in
previously deferred merger costs expensed as a result of
terminating the merger agreement with UtiliCorp, a $5 million
termination fee paid upon termination, and $13 million in costs
to defend against Western Resources' unsolicited exchange offer.
Both periods also reflect increased non-utility expenses and
subsidiary operating costs. Increased gas operations and
inclusion of three small companies in which KLT obtained
controlling interests during 1997 are the primary activities that
contributed to the increased subsidiary expenses.
Income Taxes
Income taxes for the three- and twelve-month periods reflect the
tax impact of the excess of miscellaneous deductions over
miscellaneous income. Additionally, during the first quarter of
both 1998 and 1997 we accrued tax credits of $6 million, or one-
fourth of the total expected annual credits, related to
affordable housing partnership investments and oil and
16
gas investments. Non-taxable increases in the cash surrender value
of corporate-owned life insurance contracts and certain non-
deductible expenses also affected the relationship between
miscellaneous deductions and income taxes.
INTEREST CHARGES
The increase in long-term debt interest expense for the three-
and twelve-month periods reflects higher average levels of long-term
debt outstanding. The higher average levels of debt resulted mainly
from increased KLT debt to support expanding subsidiary operations.
The increase in miscellaneous interest charges for the three- and
twelve-month periods is primarily due to interest charges incurred on
the $150 million of 8.3% preferred securities.
We use interest rate swap and cap agreements to limit the
interest expense on a portion of KCPL's variable-rate long-term debt.
We do not use derivative financial instruments for trading or other
speculative purposes. These agreements are an integral part of KCPL's
interest rate management. The effect of these agreements on interest
expense and cash flows is not significant.
WOLF CREEK
Wolf Creek is one of KCPL's principal generating units
representing about 16% of its accredited generating capacity. The
plant's operating performance has remained strong, contributing about
27% of the annual mwh generation while operating at an average
capacity of 88% over the last three years. It has the lowest fuel
cost per MMBTU of any of KCPL's generating units.
The incremental operating, maintenance and replacement power
costs for planned outages are accrued evenly over the unit's operating
cycle, normally 18 months. As actual outage expenses are incurred,
the refueling liability and related deferred tax asset are reduced.
Wolf Creek's ninth refueling and maintenance outage, budgeted for
35 days, began in early October 1997 and was completed in December
1997 (58 days). The extended length of the ninth outage was caused by
several equipment problems. The extended length of the outage was the
primary reason for a $6 million increase in Wolf Creek related
replacement power and operating and maintenance expenses for the
twelve-month period. Wolf Creek's tenth refueling and maintenance
outage is scheduled for the spring of 1999 and is estimated to be a 40
day outage.
Currently, no major equipment replacements are expected. An
extended shut-down of Wolf Creek could have a substantial adverse
effect on KCPL's business, financial condition and results of
operations. Higher replacement power and other costs would be
incurred as a result. Although not expected, an unscheduled plant
shut-down could be caused by actions of the Nuclear Regulatory
Commission reacting to safety concerns at the plant or other similar
nuclear units. If a long-term shut-down occurred, the state
regulatory commissions could consider reducing rates by excluding the
Wolf Creek investment from rate base.
Ownership and operation of a nuclear generating unit exposes KCPL
to risks regarding the cost of decommissioning the unit at the end of
its life and to potential retrospective assessments and property
losses in excess of insurance coverage.
17
ENVIRONMENTAL MATTERS
KCPL's policy is to act in an environmentally responsible manner
and use the latest technology available to avoid and treat
contamination. We continually conduct environmental audits designed
to ensure compliance with governmental regulations and detect
contamination. However, these regulations are constantly evolving;
governmental bodies may impose additional or more rigid environmental
regulations that could require substantial changes to operations or
facilities.
The Clean Air Act Amendments of 1990 contain two programs
significantly affecting the utility industry. KCPL has spent about $5
million for the installation of continuous emission monitoring
equipment to satisfy the requirements under the acid rain provision.
The other utility-related program calls for a study of certain air
toxic substances. Based on the outcome of this study, regulation of
these substances, including mercury, could be required. We cannot
predict the likelihood of any such regulations or compliance costs.
In July 1997 the United States Environmental Protection Agency
(EPA) published new air quality standards for ozone and particulate
matter. Additional regulations implementing these new standards are
expected to be finalized in 1998. Without the implementation
regulations, the real impact of the standards on KCPL cannot be
determined. However, the impact on KCPL and other utilities who use
fossil fuels could be substantial. Under the new fine particulate
regulations the EPA will begin a five-year study of fine particulate
emissions. Until this testing and review period has been completed,
KCPL cannot determine additional compliance costs, if any, associated
with the new particulate regulations.
In 1997 the EPA also issued new proposed regulations on reducing
Nitrogen Oxide (NOx) emissions. Under the new regulations 22 states,
including Missouri but not Kansas, would be required to develop plans
to reduce NOx emissions. The new limits would go into effect in
either 2002 or 2004. The cost of equipment to reduce NOx emissions
could be substantial, however, until regulations are finalized the
associated costs to KCPL cannot be determined.
At a December 1997 meeting in Kyoto, Japan, the Clinton
Administration supported changes to the International Global Climate
Change treaty which would require a seven percent reduction in United
States Carbon Dioxide (CO2) emissions below 1990 levels. President
Clinton has stated that this change in the treaty will not be
submitted to the U.S. Senate at this time where ratification is
uncertain. If future national restrictions on electric utility CO2
emissions are eventually required, the financial impact upon KCPL
could be substantial.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs using two
digits instead of four digits to define the applicable year. Computer
programs with date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations.
Through ongoing assessment of the Year 2000 Issue, we have
determined that it is necessary to modify or replace some of KCPL's
internal software so that its computer systems will properly utilize
dates beyond December 31, 1999. We believe that with the planned
modifications and conversions of KCPL's software, the Year 2000 Issue
can be mitigated. We will utilize both internal and external
resources to address the Year 2000 Issue.
18
For the past several years, we have been incurring capitalizable
costs to replace older systems with new and innovative technologies
that place us in a stronger competitive position for the future. As a
result, the cost of the Year 2000 project has been lessened. The
costs of modifications and replacements identified in the Year 2000
project are being expensed as incurred and are not material to KCPL's
results of operations. However, there is no guarantee that current
cost estimates of the Year 2000 project will not be exceeded.
Specific factors that might cause costs to exceed estimates include,
but are not limited to, the availability and cost of appropriately
trained personnel, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
We have initiated formal communications with all of KCPL's large
suppliers and customers to evaluate KCPL's vulnerability to those
third parties' failure to remediate their own Year 2000 Issue.
However, there is no guarantee that third party systems on which
KCPL's systems rely will be timely converted, or that a failure to
convert, or a conversion that is incompatible with KCPL's systems,
would not have a material adverse effect on KCPL.
CAPITAL REQUIREMENTS AND LIQUIDITY
As of April 1, 1998, the liquid resources of KCPL included cash
flows from operations; $300 million of registered but unissued,
unsecured medium-term notes; $150 million of registered but unissued,
preferred securities and $314 million of unused bank lines of credit.
The unused lines consisted of KCPL's short-term bank lines of credit
of $271 million and KLT's long-term revolving line of credit of $43
million. Cash and cash equivalents decreased by $55 million from
December 31, 1997 to March 31, 1998, primarily due to redeeming $51
million of maturing long-term debt and paying dividends.
KCPL continues to generate positive cash flows from operating
activities although individual components of working capital items
will vary with normal business cycles and operations including the
timing of receipts and payments. The timing of the Wolf Creek outage
affects the refueling outage accrual, deferred income taxes and
amortization of nuclear fuel.
The increase in accrued taxes from December 31, 1997, to March
31, 1998, mainly reflects the timing of income tax and property tax
payments.
Coal inventory levels at the end of April 1998 continue to be
about 75% of targeted levels, due mainly to poor railroad delivery
performance. Such railroad related problems are expected to continue
at least through the end of 1998. We are continuing to work with
KCPL's rail carriers to ensure an adequate coal supply and allow
recovery to targeted coal inventory levels.
Cash used in investing activities varies with the timing of
utility capital expenditures and KLT's purchases of investments and
nonutility properties. KLT closed several large investments during
the first three months of 1997. Additionally, the current twelve-
month period reflects $21.5 million of proceeds from the sale of
streetlights to the City of Kansas City, Missouri at a minimal gain.
Cash used for financing activities increased for the twelve-month
period primarily due to repayment of long- and short-term debt. In
April 1997, KCPL Financing I, a wholly-owned subsidiary of KCPL,
issued $150 million of preferred securities, which was used in part
for these repayments. Additionally, in the prior twelve-month period
long- and short-term borrowings increased to finance KCPL's $53
million payment to UtiliCorp as well as additional purchases of
investments and nonutility properties by KLT.
19
KCPL's common dividend payout ratio was 98% for the current
twelve-month period and 153% for the prior twelve-month period
compared to 80% for the twelve-month period ended March 31, 1996. The
increase in the payout ratios is due mainly to the reduction in
earnings because of the significant merger-related expenses in both
twelve-month periods.
We expect to meet day-to-day operations, utility construction
requirements and dividends with internally-generated funds.
Uncertainties affecting KCPL's ability to meet these requirements with
internally-generated funds include the effect of inflation on
operating expenses, the level of mwh sales, regulatory actions,
compliance with future environmental regulations and the availability
of generating units. The funds needed for the retirement of
$414 million of maturing debt through the year 2002 will be provided
from operations, refinancings or short-term debt. KCPL might issue
additional debt and/or additional equity to finance growth or take
advantage of new opportunities.
20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
STATE OF MISSOURI EX REL. INTER-CITY BEVERAGE CO., INC., ET. AL
VS. THE PUBLIC SERVICE COMMISSION OF THE STATE OF MISSOURI, ET.
AL; AND JEWISH COMMUNITY CAMPUS OF GREATER KANSAS CITY, INC. VS.
KANSAS STATE CORPORATION COMMISSION, ET. AL.
On August 13, 1993, a lawsuit was filed by nine customers,
including Inter-City Beverage Co., Inc., in the Circuit Court of
Jackson County, Missouri against KCPL. The suit alleged the
misapplication of certain of KCPL's electric rate tariffs
resulting in overcharges to industrial and commercial customers
which had been provided service under those tariffs and requested
certification as a class action. On December 3, 1993, the Court
dismissed the matter for lack of subject matter jurisdiction.
Plaintiffs appealed to the Missouri Court of Appeals, Western
District. The Court of Appeals upheld the dismissal. Plaintiffs
then filed a motion to transfer the case with the Missouri
Supreme Court. The motion was denied.
Plaintiffs then took their claims to the state commissions
filing complaints at the MPSC on August 23, 1995, and at the KCC
on August 30, 1995, on behalf of Jewish Community Campus, the
only Kansas plaintiff. The MPSC complaint was dismissed May 1,
1996. The Cole County, Missouri Circuit Court affirmed the
dismissal on January 29, 1997, and the Missouri Court of Appeals,
Western District, affirmed the dismissal on April 21, 1998.
Appellant has until May 6, 1998, to file an application for
transfer to the Missouri Supreme Court.
The KCC complaint was dismissed April 9, 1996. The Johnson
County, Kansas District Court affirmed the dismissal on February
4, 1997. The Plaintiff filed a Notice of Appeal to the Kansas
Court of Appeals on March 3, 1997. Plaintiff's Initial Brief was
filed with the Court of Appeals on May 27, 1997. The briefs of
KCPL and the KCC were filed on June 30, 1997. Plaintiff's Reply
Brief was filed July 15, 1997.
Should the proceedings before the MPSC and KCC be overturned
by the state courts, KCPL could be required to refund the alleged
overcharges. KCPL believes it will be able to successfully
defend these actions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
Exhibit 12 Computation of Ratios of Earnings to Fixed Charges
Exhibit 27 Financial Data Schedule (for the three months
ended March 31, 1998)
REPORTS ON FORM 8-K
A report on Form 8-K was filed with the Securities and
Exchange Commission on January 6, 1998, with attached copy of a
press release issued jointly by KCPL and Western Resources, Inc.
announcing postponement of their respective January 21, 1998,
special meetings of shareholders.
A report on Form 8-K was filed with the Securities and
Exchange Commission on March 23, 1998, with attached press
release and copy of Amended and Restated Agreement and Plan of
Merger by and among Western Resources, Inc., Kansas Gas and
Electric Company, NKC, Inc., and Kansas City Power & Light
Company, dated as of February 7, 1997, and as amended and
restated March 18, 1998.
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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 CITY POWER & LIGHT COMPANY
Dated: May 5, 1998 By: /s/Drue Jennings
(Drue Jennings)
(Chief Executive Officer)
Dated: May 5, 1998 By: /s/Neil Roadman
(Neil Roadman)
(Principal Accounting Officer)
