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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996 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: 1-3368
THE EMPIRE DISTRICT ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Kansas 44-0236370
(State of Incorporation) (I.R.S. Employer
Identification No.)
602 Joplin Street, Joplin, Missouri 64801
(Address of principal executive offices) (zip code)
Registrant's telephone number: (417) 625-5100
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class exchange on
which registered
Common Stock ($1 par value) New York Stock
Exchange
5% Cumulative Preferred Stock ($10 New York Stock
par value) Exchange
4-3/4% Cumulative Preferred Stock New York Stock
($10 par value) Exchange
Preference Stock Purchase Rights New York 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 this Form 10-K. [X]
As of March 3, 1997, 16,448,309 shares of common stock were
outstanding. Based upon the closing price on the New York Stock
Exchange on March 3, 1997, the aggregate market value of the common
stock of the Company held by nonaffiliates was approximately
$306,349,755.
The following documents have been incorporated by reference into the
parts of the Form 10-K as indicated:
The Company's proxy Part of Item 10 of Part III
statement, filed pursuant
to Regulation 14A under the All of Item 11 of Part III
Securities Exchange
Act of 1934, for its 1996 Part of Item 12 of Part III
Annual Meeting of
Stockholders to be held on All of Item 13 of Part III
April 24, 1997.
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS 3
General 3
Electric Generating Facilities and Capacity 3
Construction Program 4
Fuel 5
Employees 6
Electric Operating Statistics 7
Executive Officers and Other Officers of the Registrant 8
Regulation 8
General 8
Rates 8
Fuel Adjustment Clauses 9
Environmental Matters 9
Conditions Respecting Financing 10
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED 12
STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 37
ITEM 11. EXECUTIVE COMPENSATION 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 38
SIGNATURES 41
INDEX TO EXHIBITS 42
PART I
ITEM 1. BUSINESS
General
The Empire District Electric Company (the "Company"), a Kansas
corporation organized in 1909, is an operating public utility engaged
in the generation, purchase, transmission, distribution and sale of
electricity in parts of Missouri, Kansas, Oklahoma and Arkansas. The
Company also provides water service to three towns in Missouri. In
1996, 99.5% of the Company's gross operating revenues were provided
from the sale of electricity and 0.5% from the sale of water.
The territory served by the Company's electric operations
embraces an area of about 10,000 square miles with a population of
over 330,000. The service territory is located principally in
Southwestern Missouri and also includes smaller areas in Southeastern
Kansas, Northeastern Oklahoma and Northwestern Arkansas. The principal
activities of these areas are industry, agriculture and tourism. Of
the Company's total 1996 retail electric revenues, approximately 87%
came from Missouri customers, 6% from Kansas customers, 4% from
Oklahoma customers and 3% from Arkansas customers.
The Company supplies electric service at retail to 119
incorporated communities and to various unincorporated areas and at
wholesale to four municipally-owned distribution systems and two rural
electric cooperatives. The largest urban area served by the Company is
the city of Joplin, Missouri, and its immediate vicinity, with a
population of approximately 135,000. The Company operates under
franchises having original terms of twenty years or longer in
virtually all of the incorporated communities. Approximately 41% of
the Company's electric operating revenues in 1996 were derived from
incorporated communities with franchises having at least ten years
remaining and approximately 24% were derived from incorporated
communities in which the Company's franchises have remaining terms of
ten years or less. Although the Company's franchises contain no
renewal provisions, in recent years the Company has obtained renewals
of all of its expiring franchises prior to the expiration dates.
The Company's electric operating revenues in 1996 were derived as
follows: residential 42%, commercial 30%, industrial 17%, wholesale 7%
and other 4%. Producers of food and kindred products accounted for
approximately 5% of electric revenues in 1996. The Company's largest
single on-system wholesale customer is the city of Monett, Missouri,
which in 1996 accounted for approximately 3% of electric revenues. No
single retail customer accounted for more than 1% of electric revenues
in 1996.
During 1996, the Company made an investment of approximately $2.7
million in fiber optics cable and equipment which the Company plans to
lease to other entities and use in its own operations.
Electric Generating Facilities and Capacity
At December 31, 1996, the Company's generating plants consisted
of the Asbury Plant (aggregate generating capacity of 211 megawatts),
the Riverton Plant (aggregate generating capacity of 136 megawatts),
the Empire Energy Center (aggregate generating capacity of 180
megawatts), the State Line Power Plant (aggregate generating capacity
of 101 megawatts) and the Ozark Beach Hydroelectric Plant (aggregate
generating capacity of 16 megawatts). The Company also has a 12%
ownership interest (80 megawatt capacity) in Unit No. 1 at the Iatan
Generating Station. See Item 2, "Properties - Electric Facilities" for
further information about these plants and another plant under
construction. The Company is currently constructing a 152 megawatt
Unit No. 2 at the State Line Power Plant which will increase total
owned capacity to 876 megawatts. The Company currently anticipates
that Unit No. 2 will be operational by May 31, 1997.
The Company and the ten other power suppliers in Kansas and
Western Missouri who comprise the MOKAN Power Pool have agreed to
share reserve capacity and provide emergency standby services for
fellow members. Pool members participate in studies for long-range
generation and transmission facilities requirements. Pursuant to the
MOKAN agreement, the Company is obligated annually to maintain a
capacity margin of not less than 15.3%. Effective June 1, 1997, the
capacity margin will be reduced to 13.04%. The Company is also a
member of the Southwest Power Pool, a regional division of the North
American Electric Reliability Council, and the Western Systems Power
Pool, a marketing pool which facilitates the purchase and sale of
power among members.
The Company currently supplements its on-system generating
capacity with purchases of capacity and energy from neighboring
utilities in order to meet the demands of its customers and the
capacity margins applicable to it under the MOKAN agreement. The
Company has entered into agreements for such purchases with Associated
Electric Cooperative, Inc. ("AEC"), Kansas Gas & Electric ("KG&E"),
Public Service Company of Oklahoma ("PSO"), Southwestern Electric
Power Company ("SWEPCO") and Southwestern Public Service Company
("SPS") for periods into the year 2000. In addition, the Company has
an agreement with Western Resources ("WR") for the purchase of
capacity and energy through May 31, 2010. The amount of capacity
purchased under these contracts reflects the Company's on-system
capacity and its current expectation of the future power needs of its
service territory. The following chart sets forth the Company's
purchase commitments and anticipated owned capacity (in megawatts)
during the indicated contract years (which run from June 1 to May 31
of the following year). The reduction in purchased power commitment in
2001 is the result of the expiration of the long-term AEC purchase
contract on May 21, 2001.
Purchased Anticipated
Contract Power Owned
Year Commitment Capacity Total
1994 267 657 924
1995 225 737 962
1996 290 724 1014
1997 210 876 1086
1998 230 876 1106
1999 255 876 1131
2000 287 876 1163
2001 222 876 1098
The charges for capacity purchases under the contracts referred to
above during calendar year 1996 amounted to approximately $12.6
million. Minimum charges for capacity purchases under such contracts
total approximately $88.6 million for the period June 1, 1997, through
May 31, 2002.
The maximum hourly demand on the Company's system reached a new
record high of 842 megawatts on August 6, 1996. The Company's previous
record peak of 815 megawatts was established in August 1995. The
maximum hourly winter demand during 1996 was 802 megawatts which
occurred on December 19, 1996.
Construction Program
Total gross property additions (including construction work in
progress) for the three years ended December 31, 1996, amounted to
$182.9 million, and retirements during the same period amounted to
$13.4 million.
The Company's total construction-related expenditures, including
allowance for funds used during construction ("AFUDC"), were $62.1
million in 1996 and for the next three years are estimated for
planning purposes to be as follows:
Estimated Construction
Expenditures
(amounts in millions)
1997 1998 1999 Total
New generating facilities $11.9 $0.0 $0.0 $11.9
Additions to existing
generating facilities 7.9 5.9 7.4 21.2
Transmission facilities 9.0 5.2 2.9 17.1
Distribution system 22.2 19.8 20.1 62.1
additions
General and other 4.3 5.8 2.6 12.7
additions
Total $55.3 $36.7 $33.0 $125.0
The Company's projected construction plan for 1997 includes
expenditures for the completion of a 152 megawatt gas-fired combustion
turbine unit to be placed in service by May 31, 1997 at the Company's
State Line Power Plant, west of Joplin, Missouri. The Company believes
that upon completion of this unit, existing generating facilities,
suplemented with purchased power, will provide the Company with
substantially all of its anticipated energy needs through 1999.
Accordingly, the Company has no current plans to construct additional
generating facilities. Additions to the Company's transmission and
distribution systems to meet projected increases in customer demand
constitute the majority of the remainder of the projected construction
expenditures for the three-year period.
The Company's estimated construction expenditures are reviewed
and adjusted for, among other things, revised estimates of future
capacity needs, the cost of funds necessary for construction and the
availability and cost of alternative power. Actual construction
expenditures may vary significantly from the estimates due to a number
of factors including changes in equipment delivery schedules, changes
in customer requirements, construction delays, ability to raise
capital, environmental matters, the extent to which the Company
receives timely and adequate rate increases, the extent of competition
from independent power producers and co-generators, other changes in
business conditions and changes in legislation and regulation,
including regulations governing the wheeling of power. See Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Competition" and "- Regulation" below.
Fuel
Coal supplied approximately 93.0% of the Company's total fuel
requirements in 1996 based on kilowatt-hours generated. The remainder
was supplied by natural gas (6.5%) and oil (0.5%).
The Company's Asbury Plant is fueled primarily by coal with oil
being used as startup fuel. The Plant is currently burning a coal
blend consisting of approximately 90% Western coal and 10% local coal
on a tonnage basis. Under normal conditions, the Company's targeted
coal inventory supply at Asbury is approximately 45 days. As of
December 31, 1996, the Company had sufficient coal on hand to supply
anticipated requirements at Asbury for 46 days.
The Company's Riverton Plant fuel requirements are primarily met
by coal with the remainder supplied by natural gas and oil. The
Riverton Plant is currently burning a coal blend consisting of
approximately 70% Western coal and 30% local coal on a tonnage basis.
Under normal conditions, the Company's targeted coal inventory supply
at Riverton is 45 days. As of December 31, 1996, the Company had coal
supplies on hand to meet anticipated requirements at the Riverton
Plant for 37 days.
The Company has a long-term contract, expiring in 2004, with a
subsidiary of Peabody Holding Company, Inc. for the supply of low
sulfur Western coal to meet its requirements for such coal at the
Asbury and Riverton Plants during the term of the contract. This
Peabody coal is supplied from the Rochelle and North Antelope mines
located in Campbell County, Wyoming, and is shipped from there to the
Asbury Plant by rail, a distance of approximately 800 miles. The coal
is delivered under a transportation contract with Western Railroad
Properties, Inc., Union Pacific Railroad Company and The Kansas City
Southern Railway Company. The Company owns one 125-car unit train
which delivers Peabody coal to the Asbury Plant and leases additional
railcars on an as needed basis to supplement inventory. The Company
currently has an additional train leased through the end of May 1997
which has been sub-leased. The Peabody coal is transported from Asbury
to Riverton via truck. Transportation costs account for over half of
the cost of the Peabody coal. Anticipated requirements for local coal
at both Plants are supplied under a coal supply agreement with the
Mackie-Clemens Fuel Company which expires on December 31, 1999.
The Company's Energy Center and State Line combustion turbine
facilities are fueled primarily by natural gas with oil being used as
a backup fuel. The Company's policy is to maintain a supply of oil at
these facilities which would support full load operation for
approximately three days. Based on current and projected fuel prices,
it is expected that these facilities will continue to be operated
primarily on natural gas.
The Company has entered into a firm agreement with Williams
Natural Gas Company for the transportation of natural gas to the
Empire Energy Center, the State Line Power Plant or the Riverton
Plant, as elected by the Company. The effective date of the agreement
was December 31, 1996. The Company has rebrokered the agreement to
Williams Energy Services through May 31, 1997. The Company's intent is
to begin transporting natural gas under the agreement beginning June
1, 1997. The Company expects that its remaining gas transportation
requirements, as well as the majority of its gas supply requirements,
will be met by spot purchases. The Company historically has purchased
natural gas on a monthly basis; and, on limited occasions, entered
into agreements to purchase a specified quantity of natural gas at a
specified price for a future month.
Unit No. 1 at the Iatan Plant is a coal-fired generating unit
which is jointly-owned by Kansas City Power & Light ("KCPL") (70%),
St. Joseph Light & Power Company ("SJLP") (18%) and the Company (12%).
Low sulfur Western coal in quantities sufficient to meet substantially
all of Iatan's requirements is supplied under a long-term contract
expiring on December 31, 2003, between the joint owners and the Arco
Coal Company, a division of the Atlantic Richfield Company. The coal
is transported by rail under a contract expiring on December 31, 2000,
with Burlington Northern, Kansas City Southern Railway Company and the
MO-KAN-TEX railroads. The remainder of Iatan Unit No. 1's requirements
for coal are met with spot purchases.
The following table sets forth a comparison of the cost,
including transportation costs, per million btu of various types of
fuels used in the Company's facilities:
1996 1995 1994
Coal - Iatan $0.847 $0.822 $0.888
Coal - Asbury 1.116 1.061 1.040
Coal - Riverton 1.250 1.211 1.173
Natural Gas 2.365 1.607 1.820
Oil 4.437 3.338 4.006
The Company's weighted cost of fuel burned per kilowatt-hour
generated was 1.403 cents in 1996, 1.255 cents in 1995 and 1.194 cents
in 1994.
Employees
At December 31, 1996, the Company had 618 full-time employees, of
whom 333 were members of Local 1474 of The International Brotherhood
of Electrical Workers ("IBEW"). On November 8, 1996, the Company
signed a new three-year agreement with the IBEW expiring on October
31, 1999. The agreement provides, among other things, for a 3.0%
increase in wages commencing on November 1, 1996, with additional
minimum increases of 2.75% at November 1, 1997 and November 1, 1998.
Non-union employees received substantially comparable increases in 1996.
ELECTRIC OPERATING STATISTICS (1)
1996 1995 1994 1993 1992
Electric Operating Revenues
(000s):
Residential (2) $86,014 $81,331 $71,977 $68,477 $59,645
Commercial (2) 61,811 58,430 54,052 50,264 45,264
Industrial (2) 35,213 32,637 31,317 28,880 26,596
Public authorities 4,180 3,745 3,509 3,419 3,177
Wholesale on-system 9,482 8,360 8,173 8,038 6,837
Miscellaneous 3,639 3,345 2,393 2,302 1,975
Total system 200,339 187,848 171,421 161,380 143,494
Wholesale off-system 4,595 4,000 5,391 6,244 5,997
Total electric operating $204,934 $191,848 $176,812 $167,624 $149,491
revenues
Electricity generated and
purchased (000s of Kwh):
Steam 2,231,062 2,374,021 2,495,055 2,322,749 2,307,854
Hydro 62,860 71,302 83,556 102,673 77,644
Combustion turbine 162,679 170,479 51,358 39,532 5,048
Total generated 2,456,601 2,615,802 2,629,969 2,464,954 2,390,546
Purchased 1,968,898 1,540,816 1,394,470 1,443,410 1,119,025
Total generated and 4,425,499 4,156,618 4,024,439 3,908,364 3,509,571
Interchange (net) (1,087) (5,851) 630 11,266 2,657
Total system input 4,424,412 4,150,767 4,025,069 3,919,630 3,512,228
Maximum hourly system demand 842,000 815,000 741,000 739,000 680,000
(Kw)
Owned capacity (end of period) 724,000 737,000 656,500 657,300 657,300
(Kw)
Annual load factor (%) 56.85 55.15 57.32 54.88 52.77
Electric sales (000s of Kwh):
Residential 1,440,512 1,350,340 1,264,721 1,248,482 1,068,595
Commercial 1,154,879 1,086,894 1,018,052 950,906 850,829
Industrial 923,730 859,017 827,067 760,737 695,271
Public authorities 95,652 90,543 86,463 83,239 78,050
Wholesale on-system 262,330 243,869 234,228 232,815 220,916
Total system 3,877,103 3,630,663 3,430,531 3,276,179 2,913,661
Wholesale off-system 219,814 213,590 304,554 366,729 360,251
Total electric sales 4,096,917 3,844,253 3,735,085 3,642,908 3,273,912
Company use (000s of Kwh) 9,584 9,559 9,260 9,117 8,924
Lost and unaccounted for (000s 317,911 296,955 280,724 267,605 229,392
of Kwh)
Total system input 4,424,412 4,150,767 4,025,069 3,919,630 3,512,228
Customers (average number of
monthly bills rendered):
Residential 115,116 112,605 109,032 105,079 101,943
Commercial 20,758 20,098 19,175 18,447 17,796
Industrial 346 339 318 283 267
Public authorities 1,696 1,637 1,558 1,517 1,467
Wholesale on-system 7 7 7 7 7
Total system 137,923 134,686 130,090 125,333 121,480
Wholesale off-system 9 6 6 5 5
Total 137,932 134,692 130,096 125,338 121,485
Average annual sales per 12,514 11,992 11,600 11,881 10,482
residential customer (Kwh)
Average annual revenue per $747.19 $722.27 $660.14 $651.67 $585.08
residential customer
Average residential revenue per $0.0597 $0.0602 $0.0569 $0.0548 $0.0558
Kwh
Average commercial revenue per $0.0535 $0.0538 $0.0531 $0.0529 $0.0532
Kwh
Average industrial revenue per $0.0381 $0.0380 $0.0379 $0.0380 $0.0383
Kwh
(1) See Item 6 - Selected Financial Data for additional financial
information regarding the Company.
(2) In connection with the Missouri electric rate proceeding described
under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's rate structure was
changed in 1994 to more accurately reflect the cost of providing
service, resulting in a greater rate increase for residential
customers than for commercial and industrial customers.
Executive Officers and Other Officers of the Registrant
The names of the officers of the Company, their ages and years of
service with the Company as of December 31, 1996, positions held and
effective date of such positions are presented below. Each of the
executive officers of the Company has held executive officer or
management positions within the Company for at least the last five
years.
Age at With
the Officer
Name 12/31/96 Positions with the Company Company since
since
R.L. Lamb* 64 President (1982), Director (1978) 1955 1974
M.W. 52 Executive Vice President - 1967 1982
McKinney** Commercial Operations (1995),
Executive Vice President (1994),
Vice President - Customer Services
(1982), Director (1991)
V.E. Brill 55 Vice President - Energy Supply 1962 1975
(1995), Vice President - Finance
(1983), Director (1989)
R.B. Fancher 56 Vice President - Finance (1995), 1972 1984
Vice President - Corporate Services
(1984)
C.A. Stark 52 Vice President - General Services 1980 1995
(1995), Director of Corporate
Planning (1988)
D.W. Gibson 50 Director of Financial Services and 1979 1991
Assistant Secretary (1991),
Director of Financial and
Regulatory Accounting Services
(1987)
G.A. Knapp 45 Controller and Assistant Treasurer 1978 1983
(1983)
J.S. Watson 44 Secretary-Treasurer (1995), 1994 1995
Accounting Staff Specialist (1994)
*R.L. Lamb will retire from his position as President of the Company
effective March 31, 1997. Mr. Lamb will continue as a Director of the
Company.
**M.W. McKinney will become President and CEO of the Company effective
April 1, 1997.
Regulation
General. The Company, as a public utility, is subject to the
jurisdiction of the Missouri Public Service Commission ("Missouri
Commission"), the State Corporation Commission of the State of Kansas
("Kansas Commission"), the Corporation Commission of Oklahoma
("Oklahoma Commission") and the Arkansas Public Service Commission
("Arkansas Commission") with respect to services and facilities, rates
and charges, accounting, valuation of property, depreciation and
various other matters. With the exception of the Kansas Commission,
each such Commission has jurisdiction over the creation of liens on
property located in its state to secure bonds or other securities. Due
to changes in Kansas law during 1996 regarding the regulation of
securities issuances, Kansas no longer regulates the Company with
respect to such issuances, and the Federal Energy Regulatory
Commission ("FERC") will now have jurisdiction over the issuance of
securities by the Company. The Company's transmission and sale at
wholesale of electric energy in interstate commerce and its facilities
are also subject to the jurisdiction of FERC under the Federal Power
Act. FERC jurisdiction extends to, among other things, rates and
charges in connection with such transmission and sale; the sale, lease
or other disposition of such facilities and accounting matters. See
discussion of FERC Orders 888 and 889 in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Competition."
The Company's Ozark Beach Hydroelectric Plant is operated under a
license from FERC. See Item 2, "Properties - Electric Facilities." The
Company is disputing a Headwater Benefits Determination Report it
received from FERC on September 9, 1991. The report calculates an
assessment to the Company for headwater benefits received at the Ozark
Beach Hydroelectric Plant for the period 1973 through 1990 in the
amount of $705,724, and calculates an annual assessment thereafter of
$42,914 for the years 1991 through 2011. The Company believes that the
methodology used in making the assessment was incorrect and is
contesting the determination. As of December 31, 1996, FERC had not
responded to the comments filed by the Company on July 31, 1992. The
Company is currently accruing an amount monthly equal to what it
believes the correct assessment to be.
During 1996, approximately 93% of the Company's electric
operating revenues were received from retail customers. Approximately
87%, 6%, 4% and 3% of such retail revenues were derived from sales in
Missouri, Kansas, Oklahoma and Arkansas, respectively. Sales subject
to FERC jurisdiction represented approximately 7% of the Company's
electric operating revenues during 1996.
Rates. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Operating Revenues and Kilowatt-Hour
Sales" for information concerning recent electric rate proceedings.
Fuel Adjustment Clauses. Fuel adjustment clauses permit changes
in fuel costs to be passed along to customers without the need for a
rate proceeding. Fuel adjustment clauses are not permitted under
Missouri law. Pursuant to an agreement with the Kansas Commission,
entered into in connection with a 1989 rate proceeding, a fuel
adjustment clause is not applicable to the Company's retail electric
sales in Kansas. Automatic fuel adjustment clauses are presently
applicable to retail electric sales in Arkansas, Oklahoma and system
wholesale kilowatt-hour sales under FERC jurisdiction. Any increases
in fuel costs may be recovered in Missouri and Kansas only through
rate filings made with the appropriate Commissions.
Environmental Matters
The Company is subject to various federal, state, and local laws
and regulations with respect to environmental matters. Items regulated
include: air, water, hazardous waste, asbestos, PCB's and solid waste.
The Company believes that its operations are in compliance with
present laws and regulations.
The 1990 Amendments to the Clean Air Act ("1990 Amendments")
affect the Asbury, Riverton, and Iatan Power Plants. The Asbury Plant
is a Phase I facility that became an affected unit on January 1, 1995.
The Riverton Plant is classified as a Phase II facility and will
become an affected unit on January 1, 2000. The Iatan Plant elected to
withdraw as a Phase I substitution unit during 1996 and will become a
Phase II affected unit on January 1, 2000.
Under the 1990 Amendments, the amount of sulfur dioxide an
affected unit can emit is regulated. Each affected unit has been
awarded a specific number of emission allowances, each of which allows
the holder to emit one ton of sulfur dioxide. Utilities covered by the
1990 Amendments must have emission allowances equal to the number of
tons of sulfur dioxide emitted during a given year by each of their
affected units. Allowances may be traded between plants, utilities or
"banked" for future use. A market for the trading of emission
allowances exists on the Chicago Board of Trade. The Environmental
Protection Agency (the "EPA"), is withholding annually a percentage of
the emission allowances awarded to each affected unit and selling
those emission allowances through a direct auction. The Company
receives compensation from the EPA for the allowances so withheld.
In 1996, the Asbury Plant used approximately half of its
available emission allowances. In the year 2000, the number of
emission allowances that the Asbury Plant will receive each year is
expected to decline by approximately one-half (before EPA withholding)
and the Company anticipates (based on current operations) that the
Plant will use slightly more allowances than the number available each
year.
Iatan Unit No. 1 did not receive or use allowances during 1996
because of their withdrawal as a substitution unit as discussed above.
The unit will become an affected unit with respect to sulfur dioxide
in the year 2000 and will be deficient on allowances by a margin of
approximately 30% based on current operating conditions. These
allowances will need to be supplied by the respective owners from
present inventories of allowances or by the purchase of additional
allowances.
The Riverton Plant's level of emissions will require
significantly more allowances than the number awarded to the Plant
when the facility becomes an affected unit under the 1990 Amendments
in the year 2000. The Company is evaluating various methods to achieve
compliance with the Phase II requirements applicable to the Riverton
Plant. These include using sulfur dioxide allowances from the
Company's other plants, purchasing allowances from other sources,
modifying certain equipment to permit the use of greater percentages
of low sulfur coal, increasing the use of natural gas as a fuel at the
Plant and purchasing additional power. As a result, the cost of
achieving such compliance cannot be estimated at this time.
The 1990 Amendments also contain limits on the rate of nitrogen
oxide ("NOx") the Company's Iatan and Riverton Plants may emit. As
currently operated, the Iatan Plant is in compliance with the NOx
limits applicable to it under the 1990 Amendments. The Riverton Plant
has modified operating procedures allowing the Plant to be able to
comply with the current NOx standards. The Company has "early elected"
the units to maintain the current limits of 0.50 and 0.45 lbs.
NOx/mmbtu.
The EPA revised the NOx regulations during 1996 to require
cyclone units (such as Asbury) to maintain a limit of 0.86 lbs. NOx
/mmbtu effective January 1, 2000. The Asbury Plant cannot meet this
limit as it is currently operated. The Company is currently looking at
the options available for compliance with this regulation. The Company
in unable to estimate the cost of such compliance at this time, but
such costs could be material.
The Company operates under the Kansas and Missouri Water
Pollution Plans that were implemented in response to the Federal Water
Pollution Control Act Amendments of 1972. The Asbury, Iatan, Riverton,
Energy Center and State Line facilities are in compliance with
applicable regulations and have received discharge permits and
subsequent renewals as required. Renewal of the Iatan and Riverton
Power Plant permits took place in 1996.
The current temporary storage of ash resulting from the burning
of coal at the Company's power plants is in compliance with applicable
regulations. In anticipation of permanent ash storage regulations,
data is being collected on groundwater quality around the existing ash
ponds. The Company has recently requested bids from consultants to
develop an ash management study for the Company's Asbury and Riverton
Plants where ash ponds are currently operated.
Under Title 5 of the 1990 Amendments, the Company must obtain
site operating permits for each of its plants from state authorities
in the state in which each plant is located. These permits, which are
valid for five years, regulate the plant site's total emissions;
including emissions from stacks, individual pieces of equipment, road
dust, coal dust and steam leaks. The Company will submit applications
for these permits in 1997 in accordance with the 1990 Amendments of
the Clean Air Act.
Conditions Respecting Financing
The Company's Indenture of Mortgage and Deed of Trust, dated as
of September 1, 1944, as amended and supplemented (the "Mortgage"),
and its Restated Articles of Incorporation (the "Restated Articles"),
specify earnings coverage and other conditions which must be complied
with in connection with the issuance of additional first mortgage
bonds or cumulative preferred stock, or the incurrence of unsecured
indebtedness. The Mortgage generally permits the issuance of
additional bonds only if net earnings (as defined) for a specified
twelve-month period are at least twice the annual interest
requirements on all bonds at the time outstanding, including the
additional issue and all indebtedness of prior rank. Under this test,
on December 31, 1996, the Company could have issued under the Mortgage
approximately $119.5 million principal amount of additional bonds (at
an assumed interest rate of 7.2%). In addition to the interest
coverage requirement, the Mortgage provides that new bonds must be
issued against, among other things, retired bonds or 60% of net
property additions. At October 31, 1996, the Company had retired bonds
and net property additions which would enable the issuance of at least
$90.5 million principal amount of bonds.
Under the Restated Articles, (a) additional cumulative preferred
stock may be issued only if net income of the Company available for
interest and dividends (as defined) for a specified twelve-month
period is at least 1-1/2 times the sum of the annual interest
requirements on all indebtedness and the annual dividend requirements
on all cumulative preferred stock, to be outstanding immediately after
the issuance of such additional shares, and (b) the amount of
unsecured indebtedness outstanding may not exceed 20% of the sum of
the outstanding secured indebtedness plus the capital and surplus of
the Company. Under these restrictions, based on the twelve months
ended December 31, 1996, the Company could issue shares of cumulative
preferred stock with an aggregate par value of approximately $84.0
million (8-1/8% dividend rate assumed) and at December 31, 1996, the
Company could incur maximum unsecured indebtedness of approximately
$93.0 million.
ITEM 2. PROPERTIES
Electric Facilities
At December 31, 1996, the Company owned generating facilities
(including its interest in Iatan Unit No. 1) with an aggregate
generating capacity of 724 megawatts.
The principal electric generating plant of the Company is the
Asbury Plant with 211 megawatts of generating capacity. The Plant,
located near Asbury, Missouri, is a coal-fired generating station with
two steam turbine generating units. The Plant presently accounts for
approximately 29% of the Company's owned generating capacity and in
1996 accounted for approximately 46% of the energy generated by the
Company and 25% of the total energy sold by the Company. Routine plant
maintenance, during which the entire Plant is taken out of service, is
scheduled once each year, normally for approximately four weeks in the
spring. Every fifth year the spring outage is scheduled to be extended
to a total of six weeks to permit inspection of the Unit No. 1
turbine. During 1996, the Company experienced such an outage which
began on March 22 and was extended until June 1, during which
extensive work was performed. The next such extended outage will occur
in 2001. See Item 7 for additional information concerning the
maintenance outage. Unit No. 2 is also on a five-year inspection
schedule, however the unit can be overhauled without Unit No. 1 having
to come off-line. When the Asbury Plant is out of service, the Company
typically experiences increased purchased power and fuel costs
associated with replacement energy.
The Company's generating plant located at Riverton, Kansas, has
two steam-electric generating units with an aggregate generating
capacity of 92 megawatts and three gas-fired combustion turbine units
with an aggregate generating capacity of 44 megawatts. The steam-
electric generating units burn coal as a primary fuel and have the
capability of burning natural gas.
The Company owns a 12% undivided interest in the 670 megawatt
coal-fired Unit No. 1 at the Iatan Generating Station located 35 miles
northwest of Kansas City, Missouri, as well as a 3% interest in the
site and a 12% interest in certain common facilities. The Company is
entitled to 12% of the unit's available capacity and is obligated to
pay for that percentage of the operating costs of the Unit. KCPL and
SJLP own 70% and 18%, respectively, of the Unit. KCPL operates the
unit for the joint owners. See Note 9 of "Notes to Financial
Statements" under Item 8.
The Company also has two combustion turbine peaking units at the
Empire Energy Center in Jasper County, Missouri, with an aggregate
generating capacity of 180 megawatts. During 1995 the Company
converted these peaking units to operate on natural gas as well as oil
as a source of fuel. During 1996, these generating units were re-
rated, resulting in changes in previously reported capacities.
The Company's State Line Power Plant, which is located west of
Joplin, Missouri, currently consists of one 101 megawatt combustion
turbine unit. This unit, which was placed in service in mid-1995,
burns natural gas as a primary fuel and has the capability of burning
oil. The Company is constructing a second combustion turbine totaling
152 megawatts at this site which is scheduled to be placed in service
by May 31, 1997.
The Company's hydroelectric generating plant, located on the
White River at Ozark Beach, Missouri, has a generating capacity of 16
megawatts, subject to river flow. The Company has a long-term license
from FERC to operate this plant which forms Lake Taneycomo in
Southwestern Missouri.
At December 31, 1996, the Company's transmission system consisted
of approximately 22 miles of 345 kV lines, 398 miles of 161 kV lines,
741 miles of 69 kV lines and 82 miles of 34.5 kV lines. Its
distribution system consisted of approximately 5,904 miles of line.
The electric generation stations owned by the Company are located
on land owned in fee. The Company owns a 3% undivided interest as
tenant in common with KCPL and SJLP in the land for the Iatan
Generating Station. Substantially all the electric transmission and
distribution facilities of the Company are located either (1) on
property leased or owned in fee; (2) over streets, alleys, highways
and other public places, under franchises or other rights; or (3) over
private property by virtue of easements obtained from the record
holders of title. Substantially all property, plant and equipment of
the Company are subject to the Mortgage.
Water Facilities
The Company also owns and operates water pumping facilities and
distribution systems consisting of a total of approximately 72 miles
of water mains in three communities in Missouri.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings required to be disclosed by this Item are
pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock
Exchange. On March 3, 1997, there were 10,241 record holders of its
common stock. The high and low sales prices for its common stock
reported in The Wall Street Journal as New York Stock Exchange
composite transactions, and the amount per share of quarterly
dividends declared and paid on the common stock for each quarter of
1996 and 1995 were as follows:
Price of Common Stock Dividends Paid
1996 1995 Per Share
High Low High Low 1996 1995
First Quarter $19-3/8 $17-3/8 $17-5/8 $16 $0.32 $0.32
Second Quarter 18-3/8 17-1/8 18 16 0.32 0.32
Third Quarter 18-3/4 17-1/4 18-5/8 16-7/8 0.32 0.32
Fourth Quarter 19-1/2 18-1/8 19-3/4 17-1/2 0.32 0.32
Holders of the Company's common stock are entitled to dividends
if, as, and when declared by the Board of Directors of the Company,
out of funds legally available therefor, subject to the prior rights
of holders of the Company's outstanding cumulative preferred stock and
any preference stock.
The Mortgage and the Restated Articles contain certain dividend
restrictions. The most restrictive of these is contained in the
Mortgage, which provides that the Company may not declare or pay any
dividends (other than dividends payable in shares of its common stock)
or make any other distribution on, or purchase (other than with the
proceeds of additional common stock financing) any shares of, its
common stock if the cumulative aggregate amount thereof after August
31, 1944, (exclusive of the first quarterly dividend of $98,000 paid
after said date) would exceed the earned surplus (as defined)
accumulated subsequent to August 31, 1944, or the date of succession
in the event that another corporation succeeds to the rights and
liabilities of the Company by a merger or consolidation. As of
December 31, 1996, said dividend restriction did not affect any of the
retained earnings of the Company.
The Company's Dividend Reinvestment and Stock Purchase Plan (the
"Reinvestment Plan") allows common and preferred stockholders to
reinvest dividends of the Company into newly issued shares of the
Company's common stock at 95% of a market price average calculated
pursuant to the Reinvestment Plan. Stockholders may also purchase, for
cash and within specified limits, additional stock at 100% of such
market price average. The Company may elect to make shares purchased
in the open market rather than newly issued shares available for
purchase under the Reinvestment Plan. If the Company so elects, the
purchase price to be paid by Reinvestment Plan participants will be
100% of the cost to the Company of such shares. Participants in the
Reinvestment Plan do not pay commissions or service charges in
connection with purchases under the Reinvestment Plan.
The Company has a shareholders rights plan under which each of
its common stockholders has one-half a Preference Stock Purchase Right
("Right") for each share of common stock owned. One Right enables the
holder to acquire one one-hundredth of a share of Series A
Participating Preference Stock (or, under certain circumstances, other
securities) at a price of $75 per one-hundredth of a share, subject to
adjustment. The rights (other than those held by an acquiring person
or group ("Acquiring Person")), which expire July 25, 2000, will be
exercisable only if an Acquiring Person acquires 10% or more of the
Company's common stock or if certain other events occur. See Note 4 of
"Notes to Financial Statements" under Item 8 for further information.
The By-laws of the Company provide that K.S.A. Sections 17-1286
through 17-1298, the Kansas Control Share Acquisitions Act, will not
apply to control share acquisitions of the Company's capital stock.
See Note 3 of "Notes to Financial Statements" under Item 8 for
additional information regarding the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
1996 1995 1994 1993 1992
Operating revenues $205,984 $192,838 $177,757 $168,439 $150,302
Operating income $36,652 $33,151 $32,005 $29,291 $30,090
Total allowance for
funds used during $1,420 $2,239 $1,715 $229 $119
construction
Net income $22,049 $19,798(1) $19,683 $15,936 $16,905
Earnings applicable
to common stock $19,633 $17,381(1) $18,120 $15,551 $16,513
Weighted average
number of common
shares outstanding 16,015,858 14,730,902 13,734,231 13,415,539 13,119,515
Earnings per share
of common stock $1.23 $1.18(1) $1.32 $1.16 $1.26
Cash dividends per
common share $1.28 $1.28 $1.28 $1.28 $1.26
Common dividends
paid as a percentage of
earnings applicable
to common stock 104.5% 108.9% 97.0% 110.4% 99.9%
Allowance for funds
used during
construction as a
percentage of
earnings
applicable to
common stock 7.2% 12.9% 9.5% 1.5% 0.7%
Book value per common
share outstanding
at end of year $12.93 $12.67 $12.42 $12.33 $12.26
Capitalization:
Common equity $213,091 $193,137 $173,780 $167,861 $163,293
Preferred stock
without mandatory
redemption
provisions $32,902 $32,902 $32,902 $7,902 $7,902
First mortgage
bonds $219,533 $194,705 $184,977 $165,227 $143,619
Ratio of earnings
to fixed charges 3.11 2.90 3.16 2.73 2.91
Ratio of earnings
to combined
fixed charges
and preferred stock
dividend requirements 2.53 2.36 2.70 2.63 2.80
Total assets $596,980 $557,368 $520,213 $463,617 $406,731
Utility plant in
service at
original cost $717,890 $682,609 $611,360 $576,083 $543,323
Utility plant
expenditures
during the year $59,373 $49,217 $71,649 $42,648 $29,500
(1) Reflects a pre-tax charge of $4,583,000 for certain one-time costs
associated with the Company's voluntary early retirement program.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating Revenues and Kilowatt-Hour Sales
Of the Company's total electric operating revenues during 1996,
approximately 42% were from residential customers, 30% from commercial
customers, 17% from industrial customers, 5% from wholesale on-system
customers and 3% from wholesale off-system transactions. The remainder
of such revenues were derived from miscellaneous sources. The
percentage changes from the prior year in kilowatt-hour ("Kwh") sales
and revenue by major customer class were as follows:
Kwh Sales Revenues
1996 1995 1996 1995
Residential 6.7% 6.8% 5.8% 13.0%
Commercial 6.3 6.8 5.8 8.1
Industrial 7.5 3.9 7.9 4.2
Wholesale On- 7.6 4.1 13.4 2.3
System
Total System 6.8 5.8 6.6 9.2
Kwh sales to and revenue from the Company's on-system customers
increased during 1996, due primarily to the effect of warm summer
temperatures during the second quarter, particularly during the month
of June, and significantly colder weather during the first and fourth
quarters compared to the same periods in 1995. Mild weather conditions
during the third quarter of 1996 partially offset the positive impact
of such favorable weather conditions. Customer growth throughout the
Company's service territory, including continuing increases in
business activity, positively impacted Kwh sales and related revenue,
although such growth in 1996 was at a slower rate than in 1995. In
addition, the effect of an electric rate increase in Missouri
effective November 1995 contributed to the increased revenue during
the year. Residential and commercial Kwh sales increased more than the
corresponding increase in revenues during 1996, primarily due to the
effect of changes in the Company's rate design in its 1994 Missouri
rate increase. This restructuring resulted in, among other things, the
shifting of revenue from winter billing periods to summer billing
periods. On-system wholesale Kwh sales and revenues were up during the
period reflecting the weather conditions discussed above. Revenues
associated with these FERC regulated sales in 1996 increased at a
greater relative amount than Kwh sales due to the operation of the
fuel adjustment clause applicable to such sales, which permits the
pass through to customers of higher fuel and purchased power costs.
Residential and commercial Kwh sales and revenue increased during
1995, reflecting significantly warmer summer temperatures experienced
during 1995 compared to the mild summer weather in 1994 and a return
to normal winter temperatures during December 1995, after extremely
mild weather experienced during December 1994. Customer growth also
contributed to increased residential and commercial sales and revenue
during the year. During 1995, both commercial and industrial Kwh sales
and related revenues were positively impacted by continuing increases
in business activity throughout the Company's service territory.
Residential, commercial and industrial revenues were also positively
affected by the 1994 Missouri rate case discussed above. On-system
wholesale Kwh sales were up during 1995 due primarily to the weather
conditions discussed above. Revenues associated with these Kwh sales
increased at a lower relative amount due to the operation of the fuel
adjustment clause applicable to such FERC regulated sales.
The following table sets forth information regarding electric
rate increases affecting the revenue comparisons discussed above:
Percent
Date Increase Increase Increase Date
Jurisdiction Requested Requested Granted Granted Effective
Missouri 03-17-95 $8,543,910 $1,400,000 0.9% 11-15-95
Missouri 12-01-93 7,968,879 7,350,000 5.2 08-15-94
Oklahoma 08-12-94 563,387 399,370 6.9 10-21-94
Kansas 03-16-94 717,529 512,000 4.6 09-12-94
On August 1, 1996, the Company filed a request with the Missouri
Public Service Commission (the "Missouri Commission") for an interim
increase in rates for its Missouri electric customers in the amount of
$4,018,071, or 2.4%, to allow the Company to recover higher expenses
resulting from natural gas prices and purchased power prices in 1996
which were significantly higher than the levels contemplated by the
Company's existing rates. On August 23, 1996, the Missouri Commission
notified the Company that it had rejected the interim request on the
basis that an interim rate request cannot be considered without a
pending general rate case. On August 30, 1996, the Company filed a
request with the Missouri Commission for a general increase in rates
for its Missouri electric customers in the amount of approximately
$23,438,000 or 13.8%. In addition, the Company also re-filed its
interim case. On February 13, 1997, the Missouri Commission issued an
order rejecting the Company's interim request on the basis that the
Company did not show good cause or other sufficient justification for
the granting of interim rate relief. Hearings for the general rate
case are scheduled to begin on April 28, 1997. Under Missouri law, the
Missouri Commission must act on the Company's request by July 28,
1997. The Company cannot predict the extent of any increase which
might be granted as a result of this filing.
The Company's future revenues from the sale of electricity will
continue to be affected by economic conditions, business activities,
competition, weather, regulation, changes in electric rate levels and
changing patterns of electric energy use by customers. Inflation
affects the Company's operations in that historical costs rather than
current replacement costs are recovered in the Company's rates.
Off-System Transactions
In addition to sales to its own customers, the Company also sells
power to other utilities as available and also provides transmission
service through its system for transactions between other energy
suppliers. During 1996, income from such off-system transactions
exceeded related expenses by approximately $2.0 million, compared with
approximately $1.8 million during 1995. The increase in income from
off-system transactions during 1996 was due primarily to an increase
in revenue from transmission service transactions through the Western
Systems Power Pool, of which the Company is a member.
Operating Revenue Deductions
During 1996, total operating expenses increased approximately
$5.2 million (4.9%) compared to the prior year. Excluding the one-time
pre-tax charge of approximately $4.6 million in the third quarter of
1995 relating to the Company's voluntary early retirement program (the
"VERP"), total operating expenses increased approximately $9.8 million
(9.7%) compared to 1995 levels.
Total purchased power costs increased approximately $11.3 million
(31.2%) during 1996, due primarily to increased purchases of
replacement energy during an extended five-year turbine inspection at
the Asbury Plant. The inspection, which was scheduled to last
approximately six weeks, began on March 22 and was extended until June
1. Several forced outages at the Company's low-cost Asbury and jointly-
owned Iatan Plants during the third quarter of 1996 also resulted in
the Company purchasing greater amounts of replacement energy than it
purchased during 1995. In addition, the Company increased its level of
purchases to meet higher customer demand during the first half and
fourth quarter of 1996, particularly during periods of extremely cold
weather during January and February of 1996, when the Company's
suppliers curtailed the delivery of natural gas to the Company and
other utilities in the region. The weather also resulted in the
decreased availability of low-cost energy from hydro and nuclear units
of other utilities. These factors contributed to higher demand and a
tight market for purchased energy and resulted in significantly higher
prices for such energy during the first half of 1996 when compared to
the same periods in 1995.
Total fuel costs were up approximately $1.6 million (5.2%) during
1996, due primarily to the increased generation from higher-cost, gas-
fired combustion turbine units at the Energy Center in response to
high customer demand and the reduced availability of the Asbury Plant
as discussed above. Natural gas prices were considerably higher during
1996 compared to 1995. Fuel costs were also impacted early in the year
by the use of higher cost fuel oil at the Energy Center and Riverton
Plant during periods of extremely cold weather when natural gas
supplies were curtailed.
Other operating expenses decreased approximately $3.2 million
(9.5%) during 1996 compared to 1995 levels (excluding expenses related
to the VERP), due primarily to lower general and administrative costs.
During 1995, the Company's general and administrative costs were
higher in large part because of the legal proceeding relating to the
proposed purchase of energy from Ahlstrom Development Corporation
("Ahlstrom") which concluded in November 1995, and the Company's
Competitive Positioning Process ("CPP") discussed in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
Maintenance and repair expense increased approximately $0.9
million (6.9%) during 1996 compared to 1995 levels, due primarily to
increased maintenance performed on the Company's distribution system.
A significant portion of such increase was due to approximately $0.7
million in repairs associated with damage from a wind storm which
occurred at the end of April 1996, and approximately $0.4 million in
repairs associated with damage from an ice storm which occurred in the
Company's service territory at the end of November 1996. These
additional expenses were offset in part by a reduction in maintenance
expense at the Company's Riverton Plant.
Depreciation and amortization expense increased approximately
$1.7 million (8.8%) during the year due to increased levels of plant
and equipment placed in service, particularly at the Company's State
Line Power Plant. Total income taxes increased during 1996 due
primarily to higher taxable income during the current period. See Note
8 of "Notes to Financial Statements" for additional information
regarding income taxes. Other taxes were up approximately $0.5 million
(4.2%) during the year, primarily reflecting increased franchise taxes
relating to higher revenues and increased property taxes due to higher
levels of plant-in-service.
During 1995, total operating expenses (exclusive of the VERP)
were higher compared to 1994 levels primarily due to higher general
and administrative costs associated with the Ahlstrom proceedings, CPP
costs (other than the VERP) and increased fuel and purchased power
costs. Fuel costs were up during 1995 compared to the prior year
primarily because the Company substantially increased its generation
from its higher-cost, gas-fired combustion turbine units following
completion of the conversion of the Company's Energy Center to utilize
natural gas as a primary fuel, as well as the commercial availability
of State Line Unit No. 1. Partially offsetting such increases were
more favorable prices experienced by the Company during 1995 for both
natural gas and Iatan coal. Maintenance expenses were up due primarily
to increased maintenance performed on the Company's Riverton and
Asbury generating units as well as increased maintenance on the
Company's distribution system resulting in part from the system's
growth. Depreciation and amortization expense increased due to the
additional plant and equipment placed in service, particularly at
State Line Unit No. 1. Total income taxes decreased slightly due
primarily to lower taxable income, while other taxes were up
reflecting increased property tax rates, higher levels of plant-in-
service and increased franchise taxes relating to higher revenues.
Nonoperating Items
Total allowance for funds used during construction ("AFUDC")
amounted to approximately 7.2% of earnings applicable to common stock
during 1996, 12.9% during 1995 and 9.5% during 1994. AFUDC decreased
significantly during 1996, reflecting completion of State Line Unit
No. 1 in May 1995. The significantly increased level of AFUDC during
1995 reflected a higher level of construction work in progress,
particularly due to construction of the State Line Unit No. 1, as well
as higher rates for AFUDC determined in accordance with formulas
prescribed by the FERC. See Note 1 of "Notes to Financial Statements"
for more discussion of AFUDC.
Interest income decreased during 1996 compared to prior year
levels reflecting lower balances of cash available for investment
particularly due to increased levels of construction. Interest charges
on first mortgage bonds increased compared to the prior year due to
additional issuances of the Company's First Mortgage Bonds. Commercial
paper interest increased during the year due to increased usage of
short-term debt to finance the Company's construction program.
Competition
Federal regulation, such as The National Energy Policy Act of
1992 (the "Energy Act") has promoted and is expected to continue to
promote competition in the electric utility industry. The Energy Act,
among other things, eases restrictions on independent power producers,
delegates authority to the FERC to order wholesale wheeling and grants
individual states the power to order retail wheeling. At this time,
none of the states in which the Company operates has taken any such
action.
In April 1996, the FERC issued Order No. 888 (the "Order") which
requires all electric utilities that own, operate, or control
interstate transmission facilities to file open access tariffs that
offer all wholesale buyers and sellers of electricity the same
transmission services that they provide themselves. The utility would
have to take service under those tariffs for its own wholesale power
transactions. The Order requires a functional unbundling of
transmission and power marketing services. The Order also provides
stranded cost recovery mechanisms for utilities to recover costs that
were incurred to serve wholesale customers that would no longer be
recoverable as a result of the customer departing the system and
obtaining electric service from another supplier.
In accordance with the Order, on July 9, 1996, the Company filed
its open access transmission tariff with the FERC. Following an
extensive audit and discussions, the Company, FERC and intervenors
reached a proposed settlement which has not yet been approved by such
parties. Pursuant to the Order and the terms of the proposed
settlement, the tariff will not be applicable to substantially all of
the Company's existing wholesale customers until such customers
contracts have expired, or in the case of certain intervening
customers, June 1999. As a result, the Company cannot currently
predict the effect of the tariff on its current operations.
In conjunction with Order No. 888, the FERC issued a companion
order, Order No. 889, which defines the type and timing of information
to be made available by utilities to wholesale customers and
establishes standards of conduct to ensure that a utility's
transmission system operations function independently of the utility's
segment which engages in wholesale purchases and sales of electricity.
In December 1996, the Company filed with FERC a request for waiver of
these standards of conduct. The Company believes it meets the apparent
criteria utilized in recent waivers issued by the FERC. However, the
Company has procedures in place which it intends to adopt in the event
that its pending waiver request is denied, which procedures would
increase administrative costs.
Several factors exist which may enhance the Company's ability to
compete as deregulation occurs. The Company is able to generate and
purchase power relatively cheaply; during 1996, the Company's retail
rates were approximately 25% less than the electric industry average.
In addition, only 5% of the Company's electric operating revenues are
derived from sales to on-system wholesale customers, the type of
customer for which FERC is already requiring wheeling. At the same
time, the Company could face increased competitive pressure as a
result of its reliance on relatively large amounts of purchased power
and its extensive interconnections with neighboring utilities.
In response to the changing competitive environment that it now
faces, the Company in 1995 initiated and completed the CPP, to
maximize efficiency and effectiveness in providing service. As part of
the CPP, the Company redesigned its organizational structure. Further,
the Company has reduced planned construction expenditures and entered
into an agreement with Western Resources for purchased power to reduce
the uncertainty of owning new plants. In addition in 1995, the Company
also implemented an enhanced voluntary early retirement program which
was accepted by 49 of 52 eligible employees and resulted in a pre-tax
charge of approximately $4.6 million.
Earnings
Earnings per share of common stock were $1.23 during 1996
compared to $1.18 in 1995 (including the one-time charge related to
the VERP, which reduced 1995 earnings by approximately $0.19 per
share). Increased revenue resulting from weather conditions favorable
to Kwh sales, continued customer growth, and the 1995 Missouri rate
increase was partially offset by the increase in expenses discussed
above, particularly increases in purchased power expenses, fuel costs
and distribution maintenance expenses, as well as decreased levels of
AFUDC. Earnings per share in 1996 also reflect a greater number of
shares outstanding because of the Company's issuance of 880,000 shares
of common stock in April 1996. The Company believes that adequate rate
relief as a result of its Missouri rate case fully described above will
be necessary to offset increased fuel, purchased power and other expenses,
and to improve earnings.
Earnings per share of common stock were $1.18 during 1995 compared to
$1.32 in 1994. Increased revenue resulting from weather conditions
conducive to increased Kwh sales, continued customer growth and the
rate increases received in Missouri, Kansas and Oklahoma were more
than offset by increased operating expenses and the one-time charge
related to the VERP (which reduced earnings by approximately $0.19 per
share). Earnings per share also reflect increased first mortgage bond
interest, resulting from greater levels of first mortgage bonds
outstanding, increased preferred stock dividend requirements resulting
from the Company's issuance of preferred stock in a public offering in
June 1994 and the Company's issuance of 900,000 shares of common stock
in April 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction-related expenditures totaled
approximately $62.3 million, $50.8 million, and $71.6 million in 1996,
1995 and 1994, respectively. Approximately $16.2 million of
construction expenditures during 1996 were related to the construction
of Unit No. 2 at the State Line Power Plant, which is currently
scheduled to be placed in service by May 31, 1997. Additions to the
Company's transmission and distribution systems to accommodate
additional customer demand represented approximately $28.7 million of
construction expenditures during 1996. Approximately $2.7 million of
the above-mentioned construction expenditures for 1996 is related to
the Company's investment in fiber optics cable and equipment which the
Company plans to utilize and to lease to other entities. Approximately
three-fourths of construction expenditures and other funds
requirements for 1996 were satisfied internally from operations; the
remainder was provided from the sale to the public of the Company's
Common Stock and First Mortgage Bonds discussed below, the issuance of
commercial paper and from the sale of common stock through the
Company's Dividend Reinvestment Plan and Employee Stock Purchase Plan.
The Company estimates that its construction expenditures will
total approximately $55.3 million in 1997, $36.7 million in 1998 and
$33.0 million in 1999. Of these amounts, the Company anticipates that
it will spend $22.2 million, $19.8 million and $20.1 million in 1997,
1998 and 1999, respectively, for additions to the Company's
distribution system to meet projected increases in customer demand.
Also included are expenditures of $11.9 million anticipated in 1997
for the completion of Unit No. 2 at the State Line Power Plant.
On August 5, 1996, the Company amended its existing agreement
with Westinghouse to increase the aggregate megawatt capability of
Unit No. 2 at the State Line Power Plant from 101 megawatts to 152
megawatts. The resulting increase of approximately $6.0 million to
1997 construction expenditures is reflected in the above construction
expenditures.
The Company estimates that internally generated funds will
provide at least 75% of the funds required between 1997 and 1999 for
estimated construction expenditures. As in the past, the Company
intends to utilize short-term debt to finance the additional amounts
needed for such construction and repay such borrowings with the
proceeds of sales of public offerings of long-term debt or equity
securities, including the sale of the Company's common stock pursuant
to its Dividend Reinvestment Plan and Employee Stock Purchase Plan and
from internally-generated funds. The Company will continue to utilize
short-term debt as needed to support normal operations or other
temporary requirements. See Note 5 of "Notes to Financial Statements"
regarding the Company's line of credit.
On April 9, 1996, the Company sold to the public in an
underwritten offering 880,000 shares of its Common Stock. The net
proceeds of the offering of approximately $15.0 million were added to
the Company's general funds which were used to repay short-term
indebtedness and for expenses incurred in connection with the
Company's construction program.
On December 10, 1996, the Company sold to the public in an
underwritten offering $25.0 million aggregate principal amount of its
First Mortgage Bonds, 7.20% Series due 2016, the proceeds of which
were added to the Company's general funds which were used to repay
short-term indebtedness and for expenses incurred in connection with
its construction program.
At December 31, 1996, the Company's ratings for its first
mortgage bonds, preferred stock and commercial paper were as follows:
Phoenix
Duff & Phelps Moody's Standard & Poor's
First Mortgage Bonds A+ A2 A-
Preferred Stock A a3 BBB+
Commercial Paper D-1 P-1 A-2
FORWARD LOOKING STATEMENTS
Certain matters discussed in this annual report are "forward-
looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act
of 1995. Such statements address future plans, objectives,
expectations and events or conditions concerning various matters such
as capital expenditures, earnings, competition, litigation, rate and
other regulatory matters, liquidity and capital resources, and
accounting matters. Actual results in each case could differ
materially from those currently anticipated in such statements, by
reason of factors such as the cost and availability of purchased power
and fuel; the outcome of the Company's pending electric rate case in
Missouri; electric utility restructuring, including ongoing state and
federal activities; future economic conditions; legislation;
regulation; competition; and other circumstances affecting anticipated
rates, revenues and costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Empire District Electric Company
In our opinion, the financial statements listed in the index
appearing under Item 14 on Page 38 present fairly, in all
material respects, the financial position of The Empire District
Electric Company at December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years
in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. 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 of these
statements in accordance with generally accepted auditing
standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
St. Louis, Missouri
January 16, 1997
Balance Sheet
December 31,
1996 1995
Assets
Utility plant, at original cost:
Electric $714,913,653 $677,583,831
Water 5,331,286 5,073,019
Construction work in progress 37,016,435 16,303,408
757,261,374 698,960,258
Accumulated depreciation 242,051,460 223,268,355
515,209,914 475,691,903
Current assets:
Cash and cash equivalents 2,246,136 3,816,776
Accounts receivable - trade, net 12,704,920 12,512,800
Accrued unbilled revenues 6,423,760 6,579,858
Accounts receivable - other 2,874,669 1,745,999
Fuel, materials and supplies 14,435,741 14,511,898
Prepaid expenses 796,413 682,413
39,481,639 39,849,744
Deferred charges:
Regulatory assets 37,831,661 36,795,029
Unamortized debt issuance costs 3,633,349 3,431,381
Other 823,177 1,600,216
42,288,187 41,826,626
Total Assets $596,979,740 $557,368,273
Capitalization and Liabilities
Common stock, $1 par value,
16,436,559 and 15,215,933
shares issued and outstanding, $16,436,559 $15,215,933
respectively
Capital in excess of par value 145,313,610 125,690,842
Retained earnings 51,340,554 52,230,584
Total common stockholders' equity 213,090,723 193,137,359
Preferred stock 32,901,800 32,901,800
Long-term debt 219,533,678 194,704,814
465,526,201 420,743,973
Current liabilities:
Accounts payable and accrued 14,607,179 14,308,497
liabilities
Commercial paper 7,500,000 14,000,000
Customer deposits 2,820,896 2,516,903
Interest accrued 3,455,254 3,354,668
Taxes accrued, including income 449,771 1,486,304
taxes
28,833,100 35,666,372
Commitments and Contingencies (Note
10)
Noncurrent liabilities and deferred
credits:
Regulatory liability 18,648,961 19,680,363
Deferred income taxes 64,992,745 60,495,301
Unamortized investment tax credits 9,561,000 10,141,000
Postretirement benefits other than 4,417,796 4,343,938
pensions
Other 4,999,937 6,297,326
102,620,439 100,957,928
Total Capitalization and $596,979,740 $557,368,273
Liabilities
See accompanying Notes to Financial Statements.
Statement of Income
Year Ended December 31,
1996 1995 1994
Operating revenues:
Electric $204,933,622 $191,847,760 $176,811,882
Water 1,050,337 990,300 945,077
205,983,959 192,838,060 177,756,959
Operating revenue deductions:
Operating expenses:
Fuel 33,574,335 31,925,193 30,401,171
Purchased power 47,393,029 36,116,177 34,610,643
Other 30,046,147 33,201,879 30,702,085
Voluntary early retirement - 4,583,188 -
program
111,013,511 105,826,437 95,713,899
Maintenance and repairs 13,672,084 12,785,489 10,784,130
Depreciation and amortization 21,589,511 19,850,699 18,339,180
Provision for income taxes 11,800,000 10,420,000 10,679,000
Other taxes 11,256,486 10,804,852 10,236,194
169,331,592 159,687,477 145,752,403
Operating income 36,652,367 33,150,583 32,004,556
Other income and deductions:
Allowance for equity funds used 538,844 1,069,779 730,359
during construction
Interest income 158,369 251,492 91,685
Other - net (344,525) (200,950) (220,578)
352,688 1,120,321 601,466
Income before interest charges 37,005,055 34,270,904 32,606,022
Interest charges:
Long-term debt 14,881,564 14,858,664 12,956,643
Allowance for borrowed funds (881,485) (1,168,806) (984,546)
used during construction
Other 955,769 783,220 950,826
14,955,848 14,473,078 12,922,923
Net income 22,049,207 19,797,826 19,683,099
Preferred stock dividend 2,416,340 2,416,340 1,563,028
requirements
Net income applicable to common $19,632,867 $17,381,486 $18,120,071
stock
Weighted average number of 16,015,858 14,730,902 13,734,231
common shares outstanding
Earnings per weighted average $1.23 $1.18 $1.32
share of common stock
Dividends per share of common $1.28 $1.28 $1.28
stock
See accompanying Notes to Financial Statements.
Statement of Common Stockholders' Equity
Year Ended December 31,
1996 1995 1994
Common stock, $1 par value:
Balance, beginning of year $15,215,933 $13,941,531 $13,571,186
Stock issued through:
Public offering 880,000 900,000 -
Dividend reinvestment and stock 301,500 273,168 290,342
purchase plan
Employee benefit plans 39,126 101,234 80,003
Balance, end of year $16,436,559 $15,215,933 $13,941,531
Capital in excess of par value:
Balance, beginning of year $125,690,842 $106,055,389 $101,223,637
Excess of net proceeds over par
value of stock issued:
Public offering 14,850,000 14,625,000 -
Stock plans 5,494,007 5,957,370 5,687,298
Expenses related to common stock (787,580) (788,287) -
issuance
Expenses related to preferred - - (914,902)
stock issuance
Installments received on common
stock/stock 66,341 (158,630) 59,356
purchase, net
Balance, end of year $145,313,610 $125,690,842 $106,055,389
Retained earnings:
Balance, beginning of year $52,230,584 $53,783,342 $53,066,108
Net income 22,049,207 19,797,826 19,683,099
74,279,791 73,581,168 72,749,207
Less dividends paid:
8-1/8% preferred stock 2,031,250 2,031,250 1,008,667
5% preferred stock 195,090 195,090 195,090
4-3/4% preferred stock 190,000 190,000 190,000
Common stock 20,522,897 18,934,244 17,572,108
22,939,237 21,350,584 18,965,865
Balance, end of year $51,340,554 $52,230,584 $53,783,342
See accompanying Notes to Financial Statements.
Statement of Cash Flows
Year Ended December 31,
1996 1995 1994
Operating activities
Net income $22,049,207 $19,797,826 $19,683,099
Adjustments to reconcile net
income to cash flows:
Depreciation and amortization 24,314157 20,968,734 19,336,048
Pension income (1,074,130) - -
Loss on early retirement program - 4,583,188 -
Deferred income taxes, net 3,760,000 990,000 1,440,000
Investment tax credit, net (580,000) (600,000) (606,000)
Allowance for equity funds used (538,844) (1,069,779) (730,359)
during construction
Issuance of common stock for 648,535 680,891 661,937
401(k) plan
Other 141,882 142,902 1,252,201
Cash flows impacted by changes
in:
Accounts receivable and accrued (1,164,692) (2,265,380) (377,527)
unbilled revenues
Fuel, materials and supplies 76,157 (1,541,522) (1,342,855)
Prepaid expenses and deferred (2,077,625) 1,427,622 (870,280)
charges
Accounts payable and accrued 298,682 2,849,254 (295,626)
liabilities
Customer deposits, interest and (631,954) 1,099 1,548,822
taxes accrued
Other liabilities and other (149,401) (201,364) 310,717
deferred credits
Net cash provided by operating 45,071,974 45,763,471 40,010,177
activities
Investing activities
Construction expenditures (62,277,486) (50,818,744) (71,621,134)
Allowance for equity funds used 538,844 1,069,779 730,359
during construction
Net cash used in investing (61,738,642) (49,748,965) (70,890,775)
activities
Financing activities
Proceeds from issuance of first 25,000,000 40,000,000 20,000,000
mortgage bonds
Proceeds from issuance of - - 25,000,000
preferred stock
Proceeds from issuance of common 20,194,860 20,228,964 4,540,159
stock
Dividends (22,939,237) (21,350,584) (18,965,865)
Repayment of first mortgage (187,000) (30,288,000) (134,000)
bonds
Premium paid on extinguished - (1,500,000) -
debt
Net proceeds (repayments) from (6,500,000) (2,000,000) 1,000,000
short-term borrowings
Payment of debt issue costs (472,595) (650,763) -
Net cash provided by financing 15,096,028 4,439,617 31,440,294
activities
Net increase (decrease) in cash (1,570,640) 454,123 559,696
and cash equivalents
Cash and cash equivalents, 3,816,776 3,362,653 2,802,957
beginning of year
Cash and cash equivalents, end of $2,246,136 $3,816,776 $3,362,653
year
Cash and cash equivalents include cash on hand and temporary
investments purchased with an initial maturity of three months
or less. Interest paid was $14,786,000. $14,832,000 and
$12,766,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Income taxes paid were $9,479,000,
$10,289,000 and $8,763,000, for the years ended December 31,
1996, 1995 and 1994, respectively.
See accompanying Notes to Financial Stements.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Accounting Policies
The Company is subject to regulations of the Missouri Public
Service Commission (MoPSC), the State Corporation Commission of
the State of Kansas (KCC), the Corporation Commission of Oklahoma
(OCC), the Arkansas Public Service Commission (APSC) and the
Federal Energy Regulatory Commission (FERC). The accounting
policies of the Company are in accordance with the rate-making
practices of the regulatory authorities and, as such, conform to
generally accepted accounting principles as applied to regulated
public utilities. The Company's electric revenues in 1996 were
derived as follows: residential 42%, commercial 30%, industrial
17%, wholesale 8% and other 3%. Following is a description of the
Company's significant accounting policies:
Property and plant
The costs of additions to property and plant and replacements for
retired property units are capitalized. Costs include labor,
material and an allocation of general and administrative costs
plus an allowance for funds used during construction. Maintenance
expenditures and the renewal of items not considered units of
property are charged to income as incurred. The cost of units
retired is charged to accumulated depreciation, which is credited
with salvage and charged with removal costs.
Depreciation
Provisions for depreciation are computed at straight-line rates
as approved by regulatory authorities. Such provisions
approximated 3.2%, 3.1% and 3.2% of depreciable property for
1996, 1995 and 1994, respectively.
Allowance for funds used during construction
As provided in the regulatory Uniform System of Accounts, utility
plant is recorded at original cost, including an allowance for
funds used during construction (AFUDC) when first placed in
service. The AFUDC is a utility industry accounting practice
whereby the cost of borrowed funds and the cost of equity funds
(preferred and common stockholders' equity) applicable to the
Company's construction program are capitalized as a cost of
construction. This accounting practice offsets the effect on
earnings of the cost of financing current construction, and
treats such financing costs in the same manner as construction
charges for labor and materials.
AFUDC does not represent current cash income. Recognition of this
item as a cost of utility plant is in accordance with regulatory
rate practice under which such plant costs are permitted as a
component of rate base and the provision for depreciation.
In accordance with the methodology prescribed by FERC, the
Company utilized aggregate rates of 7.5% for 1996, 8.6% for 1995
and 7.0% for 1994 (on a before-tax basis) compounded
semiannually.
Income taxes
Deferred tax assets and liabilities are recognized for the tax
consequences of transactions that have been treated differently
for financial reporting and tax return purposes, measured using
statutory tax rates.
Investment tax credits utilized in prior years were deferred and
are being amortized over the useful lives of the properties to
which they relate.
Unamortized debt discount, premium and expense
Discount, premium and expense associated with long-term debt are
amortized over the lives of the related issues. Costs, including
gains and losses, related to refunded long-term debt are
amortized over the lives of the related new debt issues.
Accrued unbilled revenue
The Company accrues on its books estimated, but unbilled, revenue
and also a liability for the related taxes.
Accumulated provision for uncollectible accounts
The accumulated provision for uncollectible accounts was $265,000
at December 31, 1996 and $258,000 at December 31, 1995.
Franchise taxes
Operating revenues include franchise taxes of $3,791,370,
$3,565,396 and $3,276,352 for each of the years ended December
31, 1996, 1995 and 1994, respectively.
Liability insurance
The Company carries excess liability insurance for workers'
compensation and public liability claims. In order to provide for
the cost of losses not covered by insurance, an allowance for
injuries and damages is maintained based on loss experience of
the Company.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Estimates
also affect the reported amounts of revenues and expenses during
the report period. Actual amounts could differ from those
estimates.
Reclassification
Certain prior year amounts have been reclassified to conform with
current year presentation. These reclassifications have no effect
on previously reported net income or stockholders' equity.
2. Regulatory Matters
During the three years ending December 31, 1996 the following
rate changes were requested or in effect:
Missouri
On August 1, 1996, the Company filed a request with the MoPSC for
an interim increase in rates for its Missouri electric customers
in the amount of $4,018,071, or 2.4%, to allow the Company to
recover higher expenses resulting from natural gas prices and
purchased power prices in 1996 which have been significantly
higher than the levels contemplated by the Company's existing
rates. On August 23, 1996, the MoPSC notified the Company that it
had rejected the interim request on the basis that an interim
rate request cannot be considered without a pending general rate
case. On August 30, 1996, the Company filed a request with the
MoPSC for a general increase in rates for its Missouri electric
customers in the amount of approximately $23,438,000 or 13.8%. In
addition, the Company also refiled its interim case.
Subsequently, the MoPSC issued an order rejecting the Company's
interim request on the basis that the Company did not show good
cause or other sufficient justification for the granting of
interim rate relief. The hearing for the general rate case is
currently scheduled to begin on April 28, 1997. Under Missouri
law, the MoPSC must act on the Company's request by July 28,
1997. The Company cannot predict the extent of any increase which
might be granted as a result of this filing.
Effective November 15, 1995, the MoPSC approved a stipulated
agreement which authorized the Company to file revised rate
schedules designed to produce an increase in overall Missouri
jurisdictional gross annual electric revenues in the amount of
$1,400,000, or 0.9%. The Company's original request, filed March
17, 1995, was for an increase of $8,543,910 or 5.3%.
Effective August 15, 1994, the MoPSC approved a stipulated
agreement which authorized the Company to file revised rate
schedules designed to produce an increase in overall Missouri
jurisdictional gross annual electric revenues in the amount of
$7,350,000, or 5.2%. The Company's original request was for an
increase of $7,969,000 or 5.7%. A provision of the Missouri
agreement authorized the Company to recover the cost associated
with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions," (SFAS 106) in Missouri jurisdictional rates subsequent
to August 15, 1994 and to reflect pension cost under Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for
Pensions," (SFAS 87) on an accrual basis with modifications to
certain calculations. See further discussion in Note 7 -
Retirement Benefits.
On January 24, 1994, the MoPSC approved an increase in rates for
the Company's water customers in the amount of $124,931, or 14.3%
effective February 13, 1994. The Company had originally filed its
request on August 30, 1993, for a $165,829, or 20.4% increase.
Kansas
On September 7, 1994, the KCC approved a stipulated agreement
between the Company and the Commission Staff authorizing the
Company to file revised rate schedules designed to produce an
increase in overall Kansas jurisdictional gross electric revenues
in the amount of $512,000, or 4.6%, effective September 12, 1994.
The Company's original request was for an increase of $717,529,
or 6.7%.
Oklahoma
On October 19, 1994, the OCC approved a stipulated agreement
between the Company and the Commission Staff authorizing the
Company to file revised rate schedules designed to produce an
increase in overall Oklahoma jurisdictional gross annual electric
revenues in the amount of $399,370, or 6.9%, effective October
21, 1994. The Company's original request, as amended on August
12, 1994, was for an increase of $563,387, or 9.7%.
Arkansas
On November 8, 1994, the Company filed a notice withdrawing the
request for rate relief it filed with the APSC on June 20, 1994,
after comparing actual data with projected data included in the
original request. The Company originally requested an increase of
$274,824, or 4.5% in annual revenues.
FERC
In July 1996, the company filed with FERC an open access non-
discriminatory transmission tariff (open access tariff) in
compliance with FERC Order 888 issued in April 1996. The
Company's open access tariff filing was based on a fixed charge
methodology and reflected a revenue requirement of $18.4 million.
In October 1996, the Company received an Order Establishing
Hearing Procedures from the FERC. This Order addressed the
Company's proposed open access tariff. The FERC noted that it was
establishing hearing procedures regarding rate issues created by
parties filing timely interventions to the Company's Order 888
filing. In January 1997, the FERC staff and intervenors reached a
settlement in principle. As a result, the settlement rates will
be based on traditional cost of service methodologies and will
reflect a revenue requirement of $14.0 million. The Company has
filed a motion to suspend the hearing procedural schedule and
intends to file an uncontested offer of settlement with the FERC
within the next two months. The final settlement is subject to
FERC approval.
In conjunction with Order 888, FERC issued a companion order,
Order 889. Order 889 requests that jurisdictional utilities
implement standards of conduct to functionally separate their
transmission and wholesale power merchant functions. In December
1996, the Company filed with the FERC a request for a waiver of
these standards of conduct. The Company's request for waiver
followed recent waivers issued by the FERC. The Company believes
it meets the apparent criteria utilized in these recent FERC
waivers and intends to vigorously pursue this request.
Effects of regulation
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71), the Company's financial statements reflect
ratemaking policies prescribed by the regulatory commissions
having jurisdiction over the Company (the MoPSC, the KCC, the
OCC, the APSC and the FERC).
Certain expenses and credits, normally reflected in income as
incurred, are recognized when included in rates and recovered
from or refunded to customers. As such, the Company has recorded
the following regulatory assets which are expected to result in
future revenues as these costs are recovered through the
ratemaking process. Historically, all costs of this nature which
are determined by the Company's regulators to have been prudently
incurred have been recoverable through rates in the course of
normal ratemaking procedures and the Company believes that the
items detailed below will be afforded similar treatment.
The Company had recorded the following regulatory assets and
regulatory liability:
December 31,
1996 1995
Regulatory Assets
Income taxes $24,338,178 $24,632,136
Unamortized loss on 10,508,543 11,115,047
reacquired debt
Asbury five year maintenance 2,207,001 90,118
Other postretirement 470,857 465,394
benefits
Deferred 1993 flood losses 149,690 256,246
Incremental purchased power 157,392 236,088
- - 1993 flood
Total Regulatory Assets $37,831,661 $36,795,029
Regulatory Liability
Income Taxes $18,648,961 $19,680,363
The Company continually assesses the recoverability of its
regulatory assets. Under current accounting standards, regulatory
assets are eliminated through a charge to earnings if and when it
is probable that such amounts will not be recovered through
future revenues.
3. Common Stock
On April 9, 1996, the Company issued and sold 880,000 shares of
its common stock to the public with aggregate proceeds, net of
expenses and fees, of $15,044,000. The proceeds from the offering
were used to repay short-term indebtedness or for expenses
incurred in connection with the Company's construction program.
On April 27, 1995, the Company issued and sold 900,000 shares of
its common stock to the public with aggregate proceeds, net of
expenses and fees, of $14,850,000. The proceeds from the offering
were used to repay short-term indebtedness or for expenses
incurred in connection with the Company's construction program.
The Dividend Reinvestment and Stock Purchase Plan (the
Reinvestment Plan) allows common and preferred stockholders to
reinvest dividends paid by the Company into newly issued shares
of the Company's common stock at 95% of the market price average.
Stockholders may also purchase, for cash and within specified
limits, additional stock at 100% of the market price average. The
Company may elect to make shares purchased in the open market
rather than newly issued shares available for purchase under the
Reinvestment Plan. If the Company so elects, the purchase price
to be paid by Reinvestment Plan participants will be 100% of the
cost to the Company of such shares. Participants in the
Reinvestment Plan do not pay commissions or service charges
in connection with purchases under the Reinvestment Plan.
The Employee Stock Purchase Plan, which terminates on May 31,
2000, permits the grant to eligible employees of options to
purchase common stock at 90% of the lower of market value at date
of grant or at date of exercise. Contingent employee stock
purchase subscriptions outstanding and the maximum prices per
share were 54,706 shares at $16.31, 55,674 shares at $15.42 and
68,505 shares at $15.30 at December 31, 1996, 1995 and 1994,
respectively. Shares were issued at $15.42 per share in 1996,
$15.30 per share in 1995 and $15.53 per share in 1994.
The Company's 1986 Stock Incentive Plan (the 1986 Incentive Plan)
provided for the grant of shares of common stock through January
22, 1996. At the Company's annual meeting in April, 1996, the
Company's stockholders approved the 1996 Stock Incentive Plan
(the 1996 Incentive Plan), the terms of which are substantially
the same as the 1986 Incentive Plan. The 1996 Incentive Plan
provides for the grant of up to 650,000 shares of common stock
through January 2006. Awards made prior to 1996 were made under
the 1986 Incentive Plan; awards made on or after January 1, 1996
are made under the 1996 Incentive Plan. The terms and conditions
of any option or stock grant are determined by the Board of
Directors' Compensation Committee, within the provisions of the
applicable Incentive Plan. The Plan permits grants of stock
options and restricted stock to qualified employees and permits
Directors to receive common stock in lieu of cash compensation
for service as a Director.
During January 1996, 1995 and 1994, grants for 2,289, 1,575 and
633 shares, respectively, of restricted stock were made to
qualified employees under either the 1986 Incentive Plan or the
1996 Incentive Plan. For grants made to date, the restrictions
typically lapse and the shares are issuable to employees who
continue service with the Company three years from the date of
grant. For employees whose service is terminated by death,
retirement, disability, or under certain circumstances following
a change in control of the Company prior to the restrictions
lapsing, the shares are issuable immediately. For other
terminations, the grant is forfeited. During 1996, 1995 and 1994,
3,033, 4,387 and 3,198 shares, respectively, were issued under
either the 1986 Incentive Plan or the 1996 Incentive Plan. No
options have been granted under either Incentive Plan. In 1996,
the Company adopted the disclosure-only method under SFAS 123,
"Accounting for Stock-Based Compensation." If the fair value
based accounting method under this statement had been used to
account for stock-based compensation costs, the effect on 1996
and 1995 net income and earnings per share would have been
immaterial.
The Company's Employee 401(k) Retirement Plan (the 401(k) Plan)
allows participating employees to defer up to 15% of their annual
compensation up to a specified limit. The Company matches 50% of
each employee's deferrals by contributing shares of the Company's
common stock, such matching contributions not to exceed 3% of the
employee's annual compensation. The Company contributed 36,093,
39,548 and 36,479 shares of common stock in 1996, 1995 and 1994,
respectively, valued at market prices on the dates of
contributions. The stock issuances to effect the contributions
were not cash transactions and are not reflected as a source of
cash in the Statement of Cash Flows.
At December 31, 1996, 2,440,660 shares remain available for
issuance under the foregoing plans.
4. Preferred Stock
The Company has 5,000,000 shares of $10.00 par value cumulative
preferred stock authorized. At December 31, 1996 and 1995, these
shares were designated as follows:
Shares
1996 1995
Series without mandatory 3,300,000 3,300,000
redemption provisions
Undesignated 1,700,000 1,700,000
In the event of involuntary liquidation, holders of all
outstanding series of preferred stock will be entitled to be paid
the $10.00 par value of their shares plus accumulated and unpaid
dividends before any distribution of assets to holders of common
stock.
The Company also has 2,500,000 shares of preference stock
authorized, including 500,000 shares of Series A Participating
Preference Stock, none of which have been issued.
Preferred stock without mandatory redemption provisions
Preferred stock without mandatory redemption provisions issued
and outstanding at December 31, 1996 and 1995 is as follows:
Shares
1996 1995
5% cumulative (400,000 390,180 390,180
shares authorized)
4-3/4% cumulative (400,000 400,000 400,000
shares authorized)
8-1/8% cumulative (2,500,000 2,500,000 2,500,000
shares authorized)
3,290,180 3,290,180
In the event of voluntary liquidation or redemption of the 5% and
4-3/4% series of cumulative preferred stock, holders will be
entitled to the following amounts per share plus accumulated and
unpaid dividends: 5% cumulative - $10.50 (aggregate amount
$4,096,890); and 4-3/4% cumulative - $10.20 (aggregate amount
$4,080,000).
Preference Stock Purchase Rights
The Company had 8,218,280 and 7,607,967 Preference Stock Purchase
Rights (Rights) outstanding at December 31, 1996 and 1995,
respectively. Each Right enables the holder to acquire one one-
hundredth of a share of Series A Participating Preference Stock
(or, under certain circumstances, other securities) at a price of
$75 per one one-hundredth share, subject to adjustment. Each
share of common stock currently has one-half of one Right. The
Rights (other than those held by an acquiring person or group
(Acquiring Person)), which expire July 25, 2000, will be
exercisable only if an Acquiring Person acquires 10% or more of
the Company's common stock or announces an intention to make a
tender offer or exchange offer which would result in the
Acquiring Person owning 10% or more of the common stock. The
Rights may be redeemed by the Company in whole, but not in part,
for $0.01 per Right, prior to 10 days after the first public
announcement of the acquisition of 10% or more of the Company's
common stock by an Acquiring Person.
In addition, upon the occurrence of a merger or other business
combination, or an event of the type described in the preceding
paragraph, holders of the Rights, other than an Acquiring Person,
will be entitled, upon exercise of a Right, to receive either
common stock of the Company or common stock of the Acquiring
Person having a value equal to two times the exercise price of
the Right. Any time after an Acquiring Person acquires 10% or
more (but less than 50%) of the Company's outstanding common
stock, the Board of Directors may, at its option, exchange part
or all of the Rights (other than Rights held by the Acquiring
Person) for common stock of the Company on a one-for-two basis.
5. Long-term Debt
The principal amount of all series of first mortgage bonds
outstanding at any one time is limited by terms of the mortgage
to $1,000,000,000. Substantially all property, plant and
equipment is subject to the lien of the mortgage. At December 31
the long-term debt outstanding was as follows:
1996 1995
First mortgage bonds:
5.70% Series due 1998 $23,000,000 $23,000,000
7-1/2% Series due 2002 37,500,000 37,500,000
7.60% Series due 2005 10,000,000 10,000,000
8-1/8% Series due 2009 (1) 20,000,000 20,000,000
7.20% Series due 2016 25,000,000 -
9-3/4% Series due 2020 2,250,000 2,250,000
7% Series due 2023 45,000,000 45,000,000
7-3/4% Series due 2025 30,000,000 30,000,000
7-1/4% Series due 2028 13,891,000 14,078,000
5.3% Pollution Control Series 8,000,000 8,000,000
due 2013
5.2% Pollution Control Series 5,200,000 5,200,000
due 2013
219,841,000 195,028,000
Less unamortized net discount 307,322 323,186
$219,533,678 $194,704,814
(1) Holders of this series have the right to require the
Company to repurchase all or any portion of the bonds at a
price of 100% of the principal amount plus accrued interest, if
any, on November 1, 2001.
The carrying amount of the Company's long-term debt was
$219,841,000 and $195,028,000 at December 31, 1996 and 1995,
respectively, and its fair market value was estimated to be
approximately $215,664,000 and $202,315,000, respectively. This
estimate was based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for
debt of the same remaining maturation. The estimated fair market
value may not represent the actual value that could have been
realized as of year-end or that will be realizable in the future.
At December 31, 1996, the Company had a $15,000,000 unsecured
line of credit. Borrowings are at the bank's prime commercial
rate and are due 370 days from the date of each loan. In
connection with the Company's line of credit there is an informal
compensating balance arrangement under which the Company
maintains deposits averaging 5% of the line of credit. This
arrangement does not serve to legally restrict the use of the
Company's cash. The line of credit is also utilized to support
the Company's issuance of commercial paper although it is not
assigned specifically to such support. There were no outstanding
borrowings under this agreement at December 31, 1996 or 1995.
On December 10, 1996, the Company sold to the public in an
underwritten offering $25,000,000 aggregate principal amount of
its First Mortgage Bonds, 7.20% Series due 2016, the proceeds of
which were added to the Company's general funds and used to repay
short-term indebtedness or for expenses incurred in connection
with the Company's construction program.
On April 27, 1995, the Company sold to the public in an
underwritten offering $10,000,000 aggregate principal amount of
its First Mortgage Bonds, 7.60% Series due 2005, the proceeds of
which were added to the Company's general funds and used to repay
short-term indebtedness or for expenses incurred in connection
with the Company's construction program.
On June 7, 1995, the Company sold to the public in an
underwritten offering $30,000,000 aggregate principal amount of
its First Mortgage Bonds, 7-3/4% Series due 2025, the proceeds of
which were added to the Company's general funds and used to
redeem on July 3, 1995, its First Mortgage Bonds, 9% Series due
2019.
6. Short-term Borrowings
Short-term commercial paper outstanding and notes payable
averaged $12,030,000 and $8,078,000 daily during 1996 and 1995,
respectively, with the highest month-end balances being
$22,500,000 and $19,000,000, respectively. The weighted daily
average interest rates during 1996, 1995 and 1994 were 5.6%, 6.2%
and 4.3%, respectively. The weighted average interest rates of
borrowings outstanding at December 31, 1996, 1995 and 1994 were
5.8%, 6.1% and 6.3%, respectively.
7. Retirement Benefits
Pensions
The Company's noncontributory defined benefit pension plan
includes all employees meeting minimum age and service
requirements. The benefits are based on years of service and the
employee's average annual basic earnings. Annual contributions to
the plan are at least equal to the minimum funding requirements
of ERISA. Plan assets consist of common stocks, United States
government obligations, federal agency bonds, corporate bonds and
commingled trust funds.
Net pension cost for 1996, 1995 and 1994 is comprised of the
following components:
1996 1995 1994
Service cost - benefits $1,987,057 $1,540,289 $1,610,855
earned during the period
Interest cost on projected 4,695,105 4,194,328 3,920,751
benefit obligation
Actual return on plan (6,009,653) (15,735,342) (514,240)
assets
Net amortization and (1,746,639) 9,748,753 (5,094,972)
deferral
Other - - (58,275)
Net pension benefit $(1,074,130) $(251,972) $(135,881)
For years prior to 1994 the MoPSC recognized funded amounts for
ratemaking and the Company charged these amounts to expense as
paid. As discussed in Note 2, effective August 15, 1994, the
MoPSC adopted SFAS 87 for ratemaking purposes although it
modified certain calculations. Effective on that date, the
Company commenced charging pension cost calculated under the
provisions of SFAS 87 to expense. Such change had no material
impact on the Company's financial position, results of operations
or cash flows.
Assumptions used in calculating the projected benefit obligation
for 1996 and 1995 include the following:
1996 1995
Weighted average discount rate 7-1/2% 7-1/4%
Rate of increase in compensation 5-1/2% 5%
levels
Expected long-term rate of return 9% 9%
on plan assets
The following table sets forth the plan's funded status at
December 31, 1996 and 1995:
1996 1995
Actuarial present value of
benefit obligations:
Vested benefits $50,653,837 $53,416,146
Nonvested benefits 81,591 61,651
Accumulated benefit obligation 50,735,428 53,477,797
Effect of projected future 16,073,230 13,605,325
compensation levels
Projected benefit obligation for 66,808,658 67,083,122
service rendered to date
Plan assets at fair value 70,970,880 69,225,616
Plan assets in excess of 4,162,222 2,142,494
projected benefit obligation
Unrecognized net assets at
January 1, 1986 being (2,946,933) (3,438,088)
amortized over 17 years
Unrecognized prior service cost 4,645,253 5,079,419
Unrecognized net gain (9,389,471) (8,386,884)
Accrued pension cost $(3,528,929) $(4,603,059)
Other Postretirement Benefits
The Company provides certain healthcare and life insurance
benefits to eligible retired employees, their dependents and
survivors. Participants generally become eligible for retiree
healthcare benefits after reaching age 55 with 5 years of
service.
Effective January 1, 1993, the Company adopted SFAS 106, which
requires recognition of these benefits on an accrual basis during
the active service period of the employees. The Company elected
to amortize its transition obligation (approximately $21.7
million) related to SFAS 106 over a twenty year period. Prior to
adoption of SFAS 106, the Company recognized the cost of such
postretirement benefits on a pay-as-you-go (i.e., cash) basis.
Adoption of this Standard had an adverse effect on earnings in
1994 and 1993 of approximately $0.7 million and $1.0 million (net
of income taxes), respectively, representing the Missouri
jurisdictional portion of costs that were not deemed recoverable
under ratemaking procedures. However, the MoPSC authorized the
inclusion of SFAS 106 costs in rates effective August 15, 1994,
as discussed in Note 2, Rate Matters. In addition, the states of
Kansas and Oklahoma approved recovery of the SFAS 106 costs in
the rate orders received by the Company in 1994. In the fourth
quarter of 1995, the Company decided not to pursue filing a rate
order with the FERC and the FERC has not allowed deferral beyond
three years. Thus, approximately $224,000 of deferred costs
relating to the FERC jurisdiction were written off. The Company
is deferring SFAS 106 costs relating to the Arkansas
jurisdictions as management believes that such amounts are
probable of recovery. At December 31, 1996, $471,000 of costs
were deferred for future recovery.
In accordance with the above rate orders, the Company established
two separate trusts in 1994, one for those retirees who were
subject to a collectively bargained agreement and the other for
all other retirees, to fund retiree healthcare and life insurance
benefits. The Company's funding policy is to contribute annually
an amount at least equal to the revenues collected for the amount
of postretirement benefits costs allowed in rates. Assets in
these trusts amounted to approximately $4,900,000 at December 31,
1996 and $3,100,000 at December 31, 1995.
Postretirement benefits, a portion of which have been capitalized
and/or deferred, for 1996, 1995 and 1994 included the following
components:
Year Ended December 31,
1996 1995 1994
Service cost on benefits $472,943 $478,214 $490,964
earned during the year
Interest cost on projected 1,679,461 1,830,602 1,732,866
benefit obligation
Return on assets (142,462) (41,425) -
Amortization of unrecognized 1,084,017 1,084,017 1,084,017
transition obligation
Unrecognized net (gain)/loss (486,691) (307,308) -
Other - (46,163) -
Net periodic postretirement $2,607,268 $2,997,937 $3,307,847
benefit cost
The estimated funded status of the Company's obligations under
SFAS 106 at December 31, 1996 and 1995 using a weighted average
discount rate of 7-1/2% and 7-1/4%, respectively, is as follows:
Year Ended
December 31,
1996 1995
Accumulated postretirement
benefit obligation:
Retirees $12,261,106 $13,849,134
Other fully eligible plan 2,928,656 2,753,455
participants
Other active plan 5,660,940 6,613,209
participants
Total benefit obligation 20,850,702 23,215,798
Plan assets at fair value 4,829,610 2,963,556
Accumulated postretirement
obligation in excess of plan (16,021,092) (20,252,242)
assets
Unrecognized transition 17,344,259 18,428,276
obligation
Unrecognized net gain (5,648,973) (2,519,972)
Accrued postretirement $(4,325,806) $(4,343,938)
benefit cost
The assumed 1997 cost trend rate used to measure the expected
cost of healthcare benefits is 8%. The trend rate decreases
through 2026 to an ultimate rate of 6% for 2027 and subsequent
years. The effect of a 1% increase in each future year's assumed
healthcare cost trend rate would increase the current service and
interest cost from $2.0 million to $2.6 million and the
accumulated postretirement benefit obligation from $20.7 million
to $25.7 million.
8. Income Taxes
The provision for income taxes is different from the amount of
income tax determined by applying the statutory income tax rate
to income before income taxes as a result of the following
differences:
1996 1995 1994
Computed "expected" $11,810,000 $10,650,000 $10,593,000
federal provision
State taxes, net of 1,210,000 1,077,000 939,000
federal effect
Adjustment to taxes
resulting from:
Investment tax credit (580,000) (600,000) (606,000)
amortization
Other (740,000) (497,000) (342,000)
Actual provision $11,700,000 $10,630,000 $10,584,000
Income tax expense components for the years shown are as follows:
1996 1995 1994
Taxes currently payable
Included in operating
revenue deductions:
Federal $7,500,000 $8,790,000 $8,420,000
State 1,120,000 1,240,000 1,425,000
Included in "other - net" (100,000) 210,000 (95,000)
Deferred taxes
Depreciation and 3,283,000 2,670,000 2,035,000
amortization differences
Loss on reacquired debt (249,000) 819,000 (185,000)
Postretirement benefits 251,000 (75,000) (318,000)
Voluntary early - (1,675,000) -
retirement program
Other (344,000) (749,000) (92,000)
Asbury five year 819,000 - -
maintenance
Deferred investment tax (580,000) (600,000) (606,000)
credits, net
Total income tax expense $11,700,000 $10,630,000 $10,584,000
Empire began normalizing the effect of deferred state income
taxes and other federal tax items in 1994 in conjunction with the
1994 MoPSC electric rate agreement discussed in Note 2 above. The
impact of these changes was not material to the financial
position, results of operations or cash flows of the Company.
Under SFAS 109, temporary differences gave rise to deferred tax
assets and deferred tax liabilities at year end 1996 and 1995 as
follows:
Balances as of December 31,
1996 1995
Deferred Tax Deferred Tax Deferred Deferred
Tax Tax
Assets Liabilities Assets Liabilities
Noncurrent:
Depreciation and
other property $12,680,128 $81,457,659 $13,272,176 $78,468,354
related
Unamortized 6,379,317 - 6,743,942 -
investment tax credit
Miscellaneous
book/tax recognition
differences 3,928,687 6,523,218 3,778,402 5,821,467
Total deferred taxes $22,988,132 $87,980,877 $23,794,520 $84,289,821
9. Iatan Plant
The Company owns a 12% undivided interest in a coal-fired 670
megawatt generating unit near Weston, Missouri. The Company is
entitled to 12% of the available capacity and is obligated for
that percentage of costs which are included in corresponding
operating expense classifications in the Statement of Income. At
December 31, 1996 and 1995, the Company's property, plant and
equipment accounts include the cost of its ownership interest in
the unit of $44,281,000 and $43,629,000, respectively, and
accumulated depreciation of $23,749,000 and $22,096,000,
respectively.
10. Commitments and Contingencies
The Company's 1997 construction budget is $55,300,000. The
Company's three-year construction program for 1997 through 1999
is estimated to be approximately $125,000,000.
The Company has entered into long-term agreements to purchase
capacity and energy, to obtain supplies of coal and to provide
natural gas transportation. Under such contracts, the Company
incurred purchased power and fuel costs of approximately
$52,000,000, $52,000,000 and $48,000,000 in 1996, 1995 and 1994,
respectively. Certain of these contracts provide for minimum and
maximum annual amounts to be purchased and further provide, in
part, for cash settlements to be made when minimum amounts are
not purchased. In the event that no purchases of coal, energy and
transportation services are made, an event considered unlikely by
management, minimum annual cash settlements would approximate
$29,000,000 in 1997, $25,000,000 in 1998, $27,000,000 in 1999 and
$33,000,000 in 2000 and reducing to lesser amounts thereafter
through 2012.
11. Voluntary Early Retirement Program
During 1995, the Company offered qualifying employees an enhanced
voluntary early retirement program. Of the 52 eligible employees,
49 accepted the program. This program included enhanced pension
benefits as well as postemployment medical and life insurance
benefits. As a result of the postemployment benefits provided in
connection with the enhanced voluntary early retirement program,
the Company incurred $4,583,000 in certain one-time costs
computed in accordance with SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits" and SFAS No. 106.
12. Selected Quarterly Information (Unaudited)
A summary of operations for the quarterly periods of 1996 and
1995 is as follows:
Quarters
First Second Third Fourth
(dollars in thousands except per
share amounts)
1996:
Operating revenues $47,640 $47,606 $62,736 $48,001
Operating income 7,385 6,383 14,724 8,161
Net income 3,647 2,851 11,109 4,442
Net income applicable to 3,043 2,247 10,505 3,838
common stock
Earnings per average $.20 $.14 $.64 $.23
share of common stock
1995:
Operating revenues $42,396 $42,465 $62,789 $45,188
Operating income 7,447 7,004 12,144 6,556
Net income 4,566 3,732 8,523 2,977
Net income applicable to 3,962 3,128 7,919 2,373
common stock
Earnings per average $.28 $.21 $.53 $.16
share of common stock
The sum of the quarterly earnings per average share of common
stock may not equal the earnings per average share of common
stock computed on an annual basis due to rounding.
Operating income for the third quarter of 1995 was reduced by a
pre-tax charge of $4,583,000 for certain one-time costs
associated with the Company's voluntary early retirement program.
This charge reduced earnings by $0.19 per share during the
quarter (Note 11).
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
The information required by this Item with respect to directors
and directorships may be found in the Company's proxy statement for
its Annual Meeting of Stockholders to be held April 24, 1997, which is
incorporated herein by reference.
Pursuant to instruction 3 of paragraph (b) of Item 401 of
Regulation S-K, the information required by this Item with respect to
executive officers is set forth in Item 1 of Part I of this Form 10-K
under "Executive Officers and Other Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation may be found in the
Company's proxy statement for its Annual Meeting of Stockholders to be
held April 24, 1997, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
To the knowledge of the Company, no person is the beneficial
owner of 5% or more of any class of the Company's voting securities,
and there are no arrangements the operation of which may at a
subsequent date result in a change in control of the Company.
Information regarding the number of shares of the Company's
equity securities beneficially owned by the directors and certain
executive officers of the Company and by the directors and executive
officers as a group may be found in the Company's proxy statement for
its Annual Meeting of Stockholders to be held April 24, 1997, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item with respect to certain
relationships and related transactions may be found in the Company's
proxy statement for its Annual Meeting of Stockholders to be held
April 24, 1997, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K
Index to Financial Statements and Financial Statement Schedule Covered
by Report of Independent Auditors
Balance sheets at December 31, 1996 and 1995 21
Statements of income for each of the three years in the period 22
ended December 31, 1996
Statements of common stockholders' equity for each of the three
years in the period ended December 31,1996 23
Statements of cash flows for each of the three years in the period 24
ended December 31, 1996
Notes to financial statements 25
Schedule for the years ended December 31, 1996, 1995 and 1994:
Schedule II - Valuation and qualifying accounts 40
All other schedules are omitted as the required information is either
not present, is not present in sufficient amounts, or the information
required therein is included in the financial statements or notes
thereto.
List of Exhibits PAGE
(3) (a) -The Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 4(a) to Form S-3,
File No. 33-54539).
(b) -By-laws of Company as amended January 23, 1992 (Incorporated
by reference to Exhibit 3(f) to Annual Report Form 10-K for
year ended December 31, 1991, File No. 1-3368).
(4) (a) -Indenture of Mortgage and Deed of Trust dated as of
September 1, 1944 and First Supplemental Indenture thereto
(Incorporated by reference to Exhibits B(1) and B(2) to
Form 10, File No. 1-3368).
(b) -Third Supplemental Indenture to Indenture of Mortgage and
Deed of Trust (Incorporated by reference to Exhibit 2(c) to
Form S-7, File No. 2-59924).
(c) -Sixth through Eighth Supplemental Indentures to Indenture of
Mortgage and Deed of Trust (Incorporated by reference to
Exhibit 2(c) to Form S-7, File No. 2-59924).
(d) -Fourteenth Supplemental Indenture to Indenture of Mortgage
and Deed of Trust (Incorporated by reference to Exhibit
4(f) to Form S-3, File No. 33-56635).
(e) -Sixteenth Supplemental Indenture dated as of November 1,
1989 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4 to Annual Report on
Form 10-K for year ended December 31, 1989, File No. 1-
3368).
(f) -Seventeenth Supplemental Indenture dated as of December 1,
1990 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(j) to Annual Report
on Form 10-K for year ended December 31, 1990, File No. 1-
3368).
(g) -Eighteenth Supplemental Indenture dated as of July 1, 1992
to Indenture of Mortgage and Deed of Trust (Incorporated by
reference to Exhibit 4 to Form 10-Q for quarter ended June
30, 1992, File No. 1-3368).
(h) -Nineteenth Supplemental Indenture dated as of May 1, 1993 to
Indenture of Mortgage and Deed of Trust (Incorporated by
reference to Exhibit (l) to Form S-3, File No. 33-66748).
(i) -Twentieth Supplemental Indenture dated as of June 1, 1993 to
Indenture of Mortgage and Deed of Trust (Incorporated by
reference to Exhibit (m) to Form S-3, File No. 33-66748).
(j) -Twenty-First Supplemental Indenture dated as of October 1,
1993 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4 to Form 10-Q for
quarter ended September 30, 1993, File No. 1-3368).
(k) -Twenty-Second Supplemental Indenture dated as of November 1,
1993 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(k) to Annual Report
on Form 10-K for year ended December 31, 1993, File No. 1-
3368).
(l) -Twenty-Third Supplemental Indenture dated as of November 1,
1993 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(l) to Annual Report
on Form 10-K for year ended December 31, 1993, File No. 1-
3368).
(m) -Twenty-Fourth Supplemental Indenture dated as of March 1,
1994 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(m) to Annual Report
on Form 10-K for year ended December 31, 1993, File No. 1-
3368).
(n) -Twenty-Fifth Supplemental Indenture dated as of November 1,
1994 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(p) to Form S-3,
File No. 33-56635).
(o) -Twenty-Sixth Supplemental Indenture dated as of April 1,
1995 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4 to Form 10-Q for
quarter ended March 31, 1995, File No. 1-3368).
(p) -Twenty-Seventh Supplemental Indenture dated as of June 1,
1995 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4 to Form 10-Q for
quarter ended June 30, 1995, File No. 1-3368).
(q) -Twenty-Eighth Supplemental Indenture dated as of December 1,
1996 to Indenture of Mortgage and Deed of Trust.* 44
(r) -Rights Agreement dated July 26, 1990 (Incorporated by
reference to Exhibit 4(a) to Form 8-K, dated July 26, 1990,
File No. 1-3368).
(s) -Amendment to Rights Agreement dated July 26, 1990 between
the Company and Chemical Bank (successor to Manufacturers
Hanover Trust Company), as Rights Agent (Incorporated by
reference to Exhibit 4 to Form 10-Q for quarter ended
September 30, 1991, File No. 1-3368).
(10) (a) -1986 Stock Incentive Plan as amended July 23, 1992
(Incorporated by reference to Exhibit 10 to Form 10-Q for
quarter ended June 30, 1992, File No. 1-3368).
(b) -1996 Stock Incentive Plan (Incorporated by reference to
Exhibit 4.1 to Form S-8, File No. 33-64639).
(c) -Management Incentive Plan (A description of this Plan is
incorporated by reference to page 5 of the Company's Proxy
Statement for its Annual Meeting of Stockholders held April
27, 1989).
(d) -Deferred Compensation Plan for Directors (Incorporated by
reference to Exhibit 10(d) to Annual Report on Form 10-K
for year ended December 31, 1990, File No. 1-3368).
(e) -The Empire District Electric Company Change in Control
Severance Pay Plan and Forms of Agreement (Incorporated by
reference to Exhibit 10 to Form 10-Q for quarter ended
September 30, 1991, File No. 1-3368).
(f) -Amendment to The Empire District Electric Company Change in
Control Severance Pay Plan and revised Forms of Agreement
(Incorporated by reference to Exhibit 10 to Form 10-Q for
quarter ended June 30, 1996, File No. 1-3368).
(g) -The Empire District Electric Company Supplemental Executive
Retirement Plan. (Incorporated by reference to Exhibit
10(e) to Annual Report on Form 10-K for year ended December
31, 1994, File No. 1-3368).
(12) -Computation of Ratios of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and Preferred Stock
Dividend Requirements.*
(23) -Consent of Price Waterhouse.* 63
(24) -Powers of Attorney.* 64
(27) -Financial Data Schedule for December 31, 1996. 65
This exhibit is a compensatory plan or arrangement as contemplated by
Item 14(a)(3) of Form 10-K.
*Filed herewith.
Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
1996.
SCHEDULE II
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
Balance Additions Deductions from Balance
reserve
at Charged to Other at
Accounts
beginning Charged close of
of period to Description Amount Description Amount period
income
Year ended December 31,
1996:
Reserve deducted Recovery
from assets: of
Accumulated amounts Accounts
provision for previously
uncollectible $257,861 $558,458 written $459,159 written $1,010,088 $265,390
accounts off off
Reserve not
shown separately
in balance Property,
sheet: plant &
Injuries and equipment Claims and
damages and
reserve (Note $1,263,050 $508,280 clearing $446,212 expenses $916,625 $1,300,917
A) accounts
Year ended December 31,
1995:
Reserve deducted Recovery
from assets: of
Accumulated amounts Accounts
provision for previously
uncollectible $248,452 $409,600 written $267,528 written $667,719 $257,861
accounts off off
Reserve not
shown separately
in balance Property,
sheet: plant &
Injuries and equipment Claims and
damages and
reserve (Note $1,068,607 $640,941 clearing $627,970 expenses $1,074,468 $1,263,050
A) accounts
Year ended
December 31,
1994:
Reserve deducted Recovery
from assets: of
Accumulated amounts Accounts
provision for previously
uncollectible $248,238 $325,100 written $255,578 written $580,464 $248,452
accounts off off
Reserve not
shown separately
in balance Property,
sheet: plant &
Injuries and equipment Claims and
damages and
reserve (Note $924,378 $477,347 clearing $449,657 expenses $782,775 $1,068,607
A) accounts
NOTE A: This reserve is provided for workers' compensation, certain
postemployment benefits and public liability damages. The Company at
December 31, 1996 carried insurance for workers' compensation claims
in excess of $250,000 and for public liability claims in excess of
$250,000. The injuries and damages reserve is included on the Balance
Sheet in the section "Noncurrent liabilities and deferred credits" in
the category "Other".
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.
THE EMPIRE DISTRICT ELECTRIC COMPANY
R.L. LAMB
By......................................
R. L. Lamb, President
Date: March 18, 1997
Pursuant to the requirements of the Securities Exchange 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 date indicated.
Date
R. L. LAMB
.........................
R. L. Lamb, President and Director
(Principal Executive Officer)
R. B. FANCHER
..........................
R. B. Fancher, Vice President-Finance
(Principal Financial Officer)
G. A. KNAPP
..........................
G. A. Knapp, Controller and Assistant Treasurer
(Principal Accounting Officer)
V. E. BRILL.*
..........................
V. E. Brill, Vice President-Energy Supply and Director
M. F. CHUBB, JR.*
..........................
M. F. Chubb, Jr., Director
R. D. HAMMONS*
.........................
R. D. Hammons, Director
R. C. HARTLEY*
.........................
R. C. Hartley, Director
March 18, 1997
J. R. HERSCHEND*
..........................
J. R. Herschend, Director
F. E. JEFFRIES*
...........................
F. E. Jeffries, Director
R. E. MAYES*
..........................
R. E. Mayes, Director
M. W. McKINNEY*
...........................
M. W. McKinney, Executive Vice President-
Commercial Operations and Director
M. M. POSNER*
...........................
M. M. Posner, Director
R. B. FANCHER
*By............................
(R. B. Fancher, As attorney in fact for
each of the persons indicated)