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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut Street
Kansas City, Missouri 64106
(Address of principal executive offices)
Registrant's telephone number, including area code: 816-556-2200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Cumulative Preferred Stock New York Stock Exchange
par value $100 per share -
3.80%, 4.50%, 4.35%
Common Stock without par value New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
On February 29, 1996, KCPL had 61,902,083 outstanding shares of
common stock without par value, and the aggregate market value
(based upon the closing price of these shares on the New York
Stock Exchange) of voting securities held by nonaffiliates of
KCPL was approximately $1,567,522,913.
Documents Incorporated by Reference
Portions of the 1996 Joint Proxy Statement and Prospectus are
incorporated by reference in Part III of this report.
TABLE OF CONTENTS
Page
Number
Item 1. Business 1
Proposed Merger With UtiliCorp United Inc. 1
Regulation 2
Rates 2
Environmental Matters 2
Air 2
Water 3
Waste Disposal 3
Competition 3
Fuel Supply 3
Coal 4
Nuclear 4
High-Level Waste 4
Low-Level Waste 5
Employees 5
Subsidiaries 5
Officers of the Registrant 6
Company Officers 6
KLT Inc. Officers 6
Item 2. Properties 7
Generation Resources 7
Transmission and Distribution Resources 8
General 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 9
Market Information 9
Holders 9
Dividends 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8. Consolidated Financial Statements 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 36
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management 36
Item 13. Certain Relationships and Related Transactions 36
Item 14. Exhibits and Reports on Form 8-K 37
PART I
ITEM 1. BUSINESS
Kansas City Power & Light Company (KCPL) was
incorporated in Missouri in 1922 and is headquartered in
downtown Kansas City, Missouri. KCPL is a medium-sized
public utility engaged in the generation, transmission,
distribution and sale of electricity to over 430,000
customers in a 4,700 square mile area located in all or
portions of 23 counties in western Missouri and eastern
Kansas. About two-thirds of the total retail kilowatt-
hour sales and revenue are from Missouri customers and
the remainder from Kansas customers. Customers include
approximately 379,000 residences, 50,000 commercial
firms, and 3,000 industrials, municipalities and other
electric utilities. Retail revenues in Missouri and
Kansas accounted for approximately 91% of KCPL's total
revenues in 1995. Wholesale firm power, bulk power sales
and miscellaneous electric revenues accounted for the
remainder of revenues. Low fuel costs and superior plant
performance enable KCPL to serve its customers well while
maintaining a leadership position in the bulk power
market.
KCPL as a regulated utility does not have direct
competition for retail electric service in its service
territory; however, there is competition in the
generation of electricity and between electric and gas as
an energy source.
KLT Inc., a wholly-owned, unregulated subsidiary of
KCPL, pursues opportunities in domestic and international
energy-related ventures. See "Subsidiaries" on page 5 of
this report. KCPL also owns 47% of Wolf Creek Nuclear
Operating Corporation, the operating company for the Wolf
Creek Generating Station (Wolf Creek).
Proposed Merger With UtiliCorp United Inc.
On January 19, 1996, KCPL, UtiliCorp United Inc.
(UtiliCorp) and KC United Corp. (KCU) entered into an
Agreement and Plan of Merger (the Merger Agreement) which
provides for a strategic business combination of KCPL and
UtiliCorp in a "merger-of-equals" transaction (the
Transaction). Pursuant to the Merger Agreement, KCPL and
UtiliCorp will merge with and into KCU (which may be
renamed at the discretion of KCPL and UtiliCorp), a
corporation formed for the purpose of the Transaction.
Under the terms of the Merger Agreement, each share of
KCPL common stock will be exchanged for one share of KCU
common stock and each share of UtiliCorp common stock
will be exchanged for 1.096 shares of KCU common stock.
Based on the number of shares of KCPL common stock and
UtiliCorp common stock outstanding on the date of the
Merger Agreement, KCPL's common shareholders will receive
about 55% of the common equity of KCU and UtiliCorp's
common shareholders will receive about 45%.
The Transaction is designed to qualify as a pooling
of interests for accounting and financial reporting
purposes. Under this method, the recorded assets and
liabilities of KCPL and UtiliCorp would be carried
forward to the consolidated balance sheet of KCU at their
recorded amounts. The income of KCU would include the
combined income of KCPL and UtiliCorp as though the
Transaction occurred at the beginning of the accounting
period. Prior period financial statements would be
combined and presented as those of KCU.
The Transaction will create a diversified energy
company with total combined revenues of over $3.5 billion
and over $6.5 billion in total assets, serving about
2.5 million customers in the United States, Canada, the
United Kingdom, New Zealand, Australia, China and
Jamaica. The business of the combined companies will
consist of electric utility operations, gas utility
operations and various nonutility enterprises including
independent power projects, and gas marketing, gathering
and processing operations.
The Transaction is subject to approval by each
company's shareholders and a number of regulatory
authorities. The regulatory approval process is expected
to take about 12 to 18 months. The Merger Agreement
includes termination provisions which may require certain
payments to the other party to the Transaction under
certain circumstances, including a payment of $58 million
if the Transaction is terminated by a party and within
two and one-half years following such termination, the
terminating party agrees to consummate or consummates
certain business combination transactions.
Regulation
KCPL is subject to the jurisdiction of the Public
Service Commission of the State of Missouri (MPSC), the
State Corporation Commission of the State of Kansas
(KCC), the Federal Energy Regulatory Commission (FERC),
the Nuclear Regulatory Commission (NRC) and certain other
governmental regulatory bodies as to various phases of
its operations, including rates, service, safety and
nuclear plant operations, environmental matters and
issuances of securities.
Rates
KCPL's retail electric rates are regulated by the
MPSC and KCC for sales within the respective states of
Missouri and Kansas. FERC approves KCPL's rates for
wholesale bulk electricity sales. Firm electric sales
are made by contractual arrangements between the entity
being served and KCPL.
KCPL has not increased any of its retail or wholesale
rates since 1988. Pursuant to a stipulation and
agreement with the MPSC, KCPL reduced Missouri retail
rates by about 2.7% effective January 1, 1994.
Environmental Matters
KCPL, like other electric utilities, is subject to
regulation by various federal, state and local
authorities with respect to air and water emissions,
waste disposal and other environmental matters.
Environmental regulations and standards are subject to
continual review and KCPL cannot presently estimate any
additional cost of meeting such new regulations or
standards which might be established in the future, nor
can it estimate the possible effect which any new
regulations or standards could have upon its operations.
However, KCPL currently estimates that expenditures
necessary to comply with environmental regulations during
1996 will not be material with the possible exceptions
set forth below.
Air
The Clean Air Act Amendments of 1990 (Act) contain
acid rain, air toxic and permitting provisions that
affect KCPL. The acid rain provisions established a two-
phase utility pollution control program for reducing
national SO2 emissions by 10 million tons and Nox
emissions by 2 million tons from 1980 levels. Compliance
required KCPL to install continuous emission monitoring
equipment (CEM) at all of its coal-fired electric
generating facilities. KCPL has completed the
installation task and all required equipment is now
certified. As of December 31, 1995, KCPL had spent
approximately $5 million of a budgeted $5.245 million on
this project. The Clean Air Act also calls for a study
by the Environmental Protection Agency (EPA) of certain
toxic emissions into the air. Based on the outcome of
these studies, regulation of certain air toxic emissions,
including mercury, could be required in the future. This
study was scheduled to be completed in November of 1995,
and the EPA has sought an extension until April 15, 1996.
A final provision of the Act establishes a state
operating permit program and annual state emission fees.
Compliance costs and emission fees for meeting the
requirements of this program are estimated at less than
$500,000 annually. KCPL and several other utilities in
Missouri are involved in a dispute with the Missouri
Department of Natural Resources over the correct method
of calculating emission fees. The amounts in dispute are
an additional $191,085 for 1994 and $275,407 for 1995.
Water
KCPL commissioned an environmental assessment of its
Northeast Station and of its Spill Prevention Control and
Countermeasure plan as required by the Clean Water Act.
The assessment revealed contamination of the site by
petroleum products, heavy metals, volatile and semi-
volatile organic compounds, asbestos, pesticides and
other regulated substances. Based upon studies and
discussions with Burns & McDonnell, the cost of the
cleanup could range between $1.5 million and $6 million.
Also, groundwater analysis has indicated that certain
volatile organic compounds are moving through the
Northeast site, just above bedrock, from unidentified
sources off-site. The Missouri Department of Natural
Resources (MDNR) was notified of the possible release of
petroleum products and the presence of volatile organic
compounds moving under the site. Monitoring and removal
of free petroleum products continues at the site. MDNR
has concluded that the volatile organic compounds
originated from a source off-site. MDNR stated it will
continue to investigate the source of the compounds.
Because KCPL believes it will not have liability in this
matter, it has not performed a study regarding the
possible cost of remediation of the flow of organic
compounds.
Waste Disposal
The Comprehensive Environmental Response,
Compensation and Liability Act (Superfund) established
joint and several liability for persons and entities that
generate, transport or deposit hazardous waste at
contaminated sites, as well as the current owners of such
sites and predecessors in title since the time such sites
were contaminated.
Interstate Power Company of Dubuque, Iowa
(Interstate) filed a lawsuit in 1989 against KCPL in the
Federal District Court for the District of Iowa seeking
from KCPL contribution and indemnity under the Superfund
for cleanup costs of hazardous substances at the site of
a demolished gas manufacturing plant in Mason City, Iowa.
A settlement was reached among the parties in an amount
which was not material to KCPL. Although there is
currently no evidence that groundwater remediation will
be required at the site by the EPA, if groundwater
remediation is required, KCPL, as part of the settlement,
would be required to pay Interstate 50% of those costs.
Competition
See "Regulation and Competition" on page 10 of this
report.
Fuel Supply
KCPL's principal sources of fuel for electric
generation are coal and nuclear fuel. These fuels are
expected to satisfy about 99% of the 1996 fuel
requirements with the remainder provided by other sources
including natural gas, oil and steam. The 1995 and
estimated 1996 fuel mix, based on total Btu generation,
are as follows:
Estimated
1995 1996
Coal 70% 75%
Nuclear 29% 24%
Other 1% 1%
The fuel mix varies depending on the operation of
Wolf Creek which requires a refueling and maintenance
outage about every 18 months. The plant is currently
being refueled. This outage is expected to be completed
in the second quarter of 1996.
Coal
KCPL's average cost per million Btu of coal burned,
excluding fuel handling costs, was $0.89 in 1995, $0.89
in 1994, and $0.96 in 1993. KCPL's cost of delivered coal
is about 64% of the regional average.
During 1996, approximately 11.0 million tons of coal
(7.6 million tons, KCPL's share) are projected to be
burned at KCPL's generating units, including jointly-
owned units. KCPL has entered into coal-purchase
contracts with various suppliers in Wyoming's Powder
River Basin, the nation's principal supplier of
low-sulfur coal. These contracts, with expiration dates
ranging from 1996 through 2003, will satisfy
approximately 95% of the projected coal requirements for
1996, 70% for 1997, 25% for 1998, and 20% thereafter.
Nuclear
The Wolf Creek Nuclear Operating Corporation (WCNOC),
which operates Wolf Creek, has on hand or under contract
75% of the uranium required to operate Wolf Creek through
the year 2003. The balance is expected to be obtained
through spot market and contract purchases.
Contracts are in place for 100% of Wolf Creek's
uranium enrichment requirements for 1996-1997, 90% of
such requirements for 1998-1999, 95% of such requirements
for 2000-2001, and 100% for 2006-2014. The balance of
the 1998-2005 requirements is expected to be obtained
through a combination of spot market and contract
purchases. The decision not to contract for the full
enrichment requirements is one of cost rather than
availability of service.
Contracts are in place for the conversion of uranium
to uranium hexaflouride sufficient to meet Wolf Creek's
requirements through 2000.
High-Level Waste
The Nuclear Waste Policy Act of 1982 established
schedules, guidelines and responsibilities for the
Department of Energy (DOE) to develop and construct
repositories for the ultimate disposal of spent fuel and
high-level waste. The DOE has not yet constructed a high-
level waste disposal site and has announced that a
permanent repository may not be in operation prior to
2010 although an interim storage facility may be
available earlier. The DOE likely will not immediately
begin accepting Wolf Creek's spent fuel upon opening of
the permanent repository. Instead, KCPL expects to
experience a multi-year transfer period beginning as much
as six years after opening of the permanent repository.
Wolf Creek contains an on-site spent fuel storage
facility which, under current regulatory guidelines,
provides space for the storage of spent fuel through 2006
while still maintaining fuel core off-load capability.
KCPL believes adequate additional storage space can be
obtained, as necessary.
Low-Level Waste
The Low-Level Radioactive Waste Policy Amendments Act
of 1985 mandated that the various states, individually or
through interstate compacts, develop alternative low-
level radioactive waste disposal facilities. The states
of Kansas, Nebraska, Arkansas, Louisiana and Oklahoma
formed the Central Interstate Low-Level Radioactive Waste
Compact and selected a site in northern Nebraska to
locate a disposal facility. The present estimate of the
cost for such a facility is about $153 million. WCNOC
and the owners of the other five nuclear units in the
compact have provided most of the pre-construction
financing for this project. As of January 1, 1996, the
compact has spent in excess of $68 million, of which $11
million was WCNOC's share.
There is uncertainty as to whether this project will
be completed. Significant opposition to the project has
been raised by the residents in the area of the proposed
facility and attempts have been made through litigation
and proposed legislation to slow down or stop development
of the facility.
Employees
At December 31, 1995, KCPL and its wholly-owned
subsidiaries had 2,319 employees (including temporary and
part-time employees), 1,516 of which were represented by
three local unions of the International Brotherhood of
Electrical Workers (IBEW). KCPL has labor agreements
with Local 1613, representing clerical employees (which
expires March 29, 1996), with Local 1464, representing
outdoor workers (which expires January 8, 1997), and with
Local 412, representing power plant workers (which
expires February 28, 1998). KCPL is also a 47% owner of
WCNOC, which employs 1,040 persons to operate Wolf Creek,
336 of which are represented by the IBEW.
Subsidiaries
KLT Inc. has six wholly-owned direct subsidiaries:
_ KLT Investments Inc., a passive investor in
affordable housing investments which generate tax
credits.
_ KLT Investments II Inc., formed in 1995 to make
additional passive investments in economic, community-
development and energy-related projects.
_ KLT Energy Services Inc., a partner in an energy
management services business.
_ KLT Power Inc., a participant in independent power
and cogeneration projects. KLT Power Inc. has two
subsidiaries: KLT Iatan Inc., which was formed for the
co-development of the Iatan Unit 2 coal-fired power
plant, and KLT Power International, which participates in
international independent power projects.
_ KLT Gas Inc., a participant in oil and gas reserves
and exploration.
_ KLT Telecom Inc., formed in 1995 to take advantage
of investment opportunities in telecommunications and
fiber optics.
KCPL's equity investment in KLT Inc. at December 31, 1995,
was $41 million.
Officers of the Registrant
Company Officers
Year Named
Name Age Positions Currently Held Officer
Drue Jennings 49 Chairman of the Board, President 1980
and Chief Executive Officer
John J. DeStefano 46 Senior Vice President-Finance and 1989
Treasurer
Marcus Jackson 44 Senior Vice President-Power Supply 1989
Jeanie Sell Latz 44 Senior Vice President-Corporate 1991
Services and Corporate Secretary
J. Turner White 47 Senior Vice President-Retail 1990
Services
Frank L. Branca 48 Vice President-Wholesale and 1989
Transmission Services
Steven W. Cattron 40 Vice President-Marketing and 1994
Regulatory Affairs
Charles R. Cole 49 Vice President-Customer Services 1990
and Purchasing
Douglas M. Morgan 53 Vice President-Information 1995
Technology
Richard A. Spring 41 Vice President-Production 1994
Bailus M. Tate 49 Vice President-Human Resources 1994
Neil Roadman 50 Controller 1980
Mark C. Sholander 50 General Counsel and Assistant 1986
Secretary
KLT Inc. Officers
Year Named
Name Age Positions Currently Held Officer
Bernard J. Beaudoin 55 President 1992
Ronald G. Wasson 51 Executive Vice President 1995
Floyd R. Pendleton 52 Vice President-Business 1992
Development
Mark G. English 44 Vice President and General 1995
Counsel
Janee C. Rosenthal 34 Corporate Secretary and Treasurer 1992
All of the foregoing persons have been officers of
KCPL or employees in a responsible position with KCPL for
the past five years except for Mr. Spring. Mr. Spring
was an employee of KCPL from 1978 to 1993, when he left
KCPL to join Northern Indiana Public Service Company as
Director of Electric Production. In July 1994, he
rejoined KCPL as Vice President-Production.
The term of office of each officer commences with his
or her appointment by the Board of Directors and ends at
such time as the Board of Directors may determine.
ITEM 2. PROPERTIES
Generation Resources
KCPL's generating facilities consist of the following:
Estimated
1996
Year Megawatt(mw)
Unit Completed Capacity Fuel
Existing Units
Base Load..Wolf Creek(a) 1985 548(b) Nuclear
Iatan 1980 469(b) Coal
LaCygne 2 1977 331(b) Coal
LaCygne 1 1973 341(b) Coal
Hawthorn 5 1969 479 Coal/Gas
Montrose 3 1964 161 Coal
Montrose 2 1960 152 Coal
Montrose 1 1958 150 Coal
Peak Load..Northeast 13 and 14(c) 1976 111 Oil
Northeast 17 and 18(c) 1977 108 Oil
Northeast 15 and 16(c) 1975 111 Oil
Northeast 11 and 12(c) 1972 99 Oil
Grand Avenue (2 units) 1929 & 1948 74 Gas
Total 3,134
(a) This unit is one of KCPL's principal
generating facilities and has the lowest fuel cost
of any of its generating facilities. An extended
shutdown of the unit could have a substantial
adverse effect on the operations of KCPL and its
financial condition.
(b) Company's share of jointly-owned unit.
(c) Combustion turbines.
KCPL's maximum system net hourly peak load of 2,909
mw occurred on July 13, 1995. The maximum winter peak
load of 1,956 mw occurred on February 2, 1996. The
accredited generating capacity of KCPL's electric
facilities in the summer (when peak loads are
experienced) of 1995 under MOKAN Power Pool standards was
3,103 mw.
KCPL owns the Hawthorn Station (Jackson County,
Missouri), Montrose Station (Henry County, Missouri),
Northeast Station (Jackson County, Missouri) and two
Grand Avenue Station turbine generators (Jackson County,
Missouri). KCPL also owns 50% of the 682-mw LaCygne 1
Unit and 662-mw LaCygne 2 Unit in Linn County, Kansas;
70% of the 670-mw Iatan Station in Platte County,
Missouri; and 47% of the 1,167 mw Wolf Creek in Coffey
County, Kansas.
KCPL has entered into an operating lease with Siemens
Power Corporation for a V.84.3A combustion turbine-
generator, to be in service by the year 1997, with an
anticipated accredited capacity of approximately 142 mw.
Transmission and Distribution Resources
KCPL's electric transmission system is interconnected
with systems of other utilities to permit bulk power
transactions with other electricity suppliers in Kansas,
Missouri, Iowa, Nebraska and Minnesota. KCPL is a member
of the MOKAN Power Pool, which is a contractual
arrangement among eleven utilities in western Missouri
and Kansas which interchange electric energy, share
reserve generating capacity, and provide emergency and
standby electricity services to each other.
KCPL owns approximately 1,700 miles of transmission
lines and approximately 8,900 miles of overhead
distribution lines, and approximately 3,000 miles of
underground distribution lines. KCPL has all franchises
necessary to sell electricity within the territories from
which substantially all of its gross operating revenue is
derived.
General
KCPL's principal plants and properties, insofar as
they constitute real estate, are owned in fee; certain
other facilities are located on premises held under
leases, permits or easements; and its electric
transmission and distribution systems are for the most
part located over or under highways, streets, other
public places or property owned by others for which
permits, grants, easements or licenses (deemed
satisfactory but without examination of underlying land
titles) have been obtained.
Substantially all of the fixed property and
franchises of KCPL, which consists principally of
electric generating stations, electric transmission and
distribution lines and systems, and buildings (subject to
exceptions and reservations) are subject to a General
Mortgage Indenture and Deed of Trust dated as of December
1, 1986.
ITEM 3. LEGAL PROCEEDINGS
Inter-City Beverage Co., Inc. et. al vs. Kansas City
Power & Light Company
On August 13, 1993, a lawsuit was filed by nine
customers in the Circuit Court of Jackson County,
Missouri against KCPL. The suit alleged the
misapplication of certain of KCPL's electric rate tariffs
resulting in overcharges to industrial and commercial
customers which have been provided service under those
tariffs and requested certification as a class action.
On December 3, 1993, the Court dismissed the matter for
lack of subject matter jurisdiction. Plaintiffs appealed
to the Missouri Court of Appeals, Western District. The
Court of Appeals upheld the dismissal. Plaintiffs then
filed a motion to transfer the case with the Missouri
Supreme Court. The motion was denied on January 24,
1995. Plaintiffs now have taken their claims to the
Commissions filing complaints at the MPSC on August 23,
1995, and at the KCC on August 30, 1995. KCPL believes
it will be able to successfully defend these actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matter was submitted during the fourth quarter of
the fiscal year covered by this report to a vote of
security holders through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information:
(1) Principal Market:
Common Stock of KCPL is listed on the New York
Stock Exchange and the Chicago Stock Exchange.
(2) Stock Price Information:
Common Stock Price Range
1995 1994
Quarter High Low High Low
First $24-1/2 $22-1/8 $23-1/4 $20-5/8
Second 24-1/8 22-1/8 23 18-5/8
Third 24-3/8 21-1/2 22-1/2 19-1/4
Fourth 26-5/8 23-1/2 23-7/8 21-1/8
Holders:
At December 31, 1995, KCPL's Common Stock was held by
29,657 shareholders of record.
Dividends:
Common Stock dividends were declared as follows:
Quarter 1996 1995 1994
First $0.39 $0.38 $0.37
Second 0.38 0.37
Third 0.39 0.38
Fourth 0.39 0.38
KCPL's Restated Articles of Consolidation contains
certain restrictions on the payment of dividends on
KCPL's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31
1995 1994(a) 1993 1992(b) 1991
(dollars in millions except per share amounts)
Operating revenues $ 886 $ 868 $ 857 $ 803 $ 825
Net income $ 123 $ 105 $ 106 $ 86 $ 104
Earnings per common
share $ 1.92 $ 1.64 $ 1.66 $ 1.35 $ 1.58
Total assets at
year-end $2,883 $2,770 $2,755 $2,647 $2,615
Total redeemable
preferred stock and
long-term debt
(including current
maturities) $ 911 $ 833 $ 870 $ 817 $ 825
Cash dividends per
common share $ 1.54 $ 1.50 $ 1.46 $ 1.43 $ 1.37
Ratio of earnings to
fixed charges 3.94 4.07 3.80 3.12 3.22
(a) In 1994, KCPL recorded a $22.5 million expense for a voluntary early
retirement program.
(b) In 1992, KCPL's revenues were adversely impacted by abnormally cool summer
temperatures.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REGULATION AND COMPETITION
As competition develops throughout the electric utility industry, we are
positioning Kansas City Power & Light Company (KCPL) to excel in an open
market. We're improving the efficiency of KCPL's core utility operations and
creating growth through its unregulated subsidiary. As competition presents
new opportunities, we may also consider various strategies including
partnerships, acquisitions, combinations, additions to or dispositions of
service territory, and restructuring of wholesale and retail businesses. See
Note 11 to the Consolidated Financial Statements regarding the Agreement and
Plan of Merger with UtiliCorp United Inc.
Competition in the electric utility industry was accelerated with the
National Energy Policy Act of 1992. This gave the Federal Energy Regulatory
Commission (FERC) the authority to require electric utilities to provide
transmission line access to independent power producers (IPPs) and other
utilities (wholesale wheeling). In response to FERC's new comparability
standard, KCPL, already active in the wholesale wheeling market, was one of the
first utilities to obtain FERC's acceptance of an open-access, wholesale
transmission tariff.
Certain state commissions are also attempting to establish competition in
the retail market (retail wheeling). However, this may be preempted by
provisions of the Federal Power Act or by state laws. If allowed, retail
wheeling would provide growth opportunities for low-cost producers and risks
for higher-cost producers, especially those with large industrial customers.
The loss of major customers could result in under-utilized assets and place a
costly burden on the remaining customer base or shareholders if an adequate
departure fee is not assessed to the lost customer.
Although the Missouri and Kansas commissions have not permitted retail
wheeling, we believe KCPL is positioned well to compete in an open market with
its diverse customer mix and pricing strategies. About 22% of KCPL's retail
mwh sales are to industrial customers compared to the utility average of about
35%. KCPL has a flexible rate structure with industrial rates that are
competitively priced within our region. In addition, long-term contracts are
in place or under negotiation for a significant portion of KCPL's industrial
sales.
Increased competition could also force utilities to change accounting
methods. Financial Accounting Standards Board (FASB) Statement No. 71 _
Accounting for Certain Types of Regulation, applies to regulated entities whose
rates are designed to recover the costs of providing service. An entity's
operations could stop meeting the requirements of FASB 71 for various reasons,
including a change in regulation or a change in the competitive environment for
a company's regulated services. For those operations no longer meeting the
requirements of regulatory accounting, regulatory assets would be written off.
See Note 1 to the Consolidated Financial Statements for a discussion of
regulatory assets. In a competitive environment, asset recoverability would be
determined using market-based rates which could be lower than traditional
cost-based rates. There has not been direct competition for retail electric
service in our service territory although there has been competition in the
bulk power market and between alternative fuels. KCPL's regulatory assets will
be maintained as long as the FASB 71 requirements are met.
NONREGULATED OPPORTUNITIES
In 1992 we formed KLT Inc., a wholly-owned subsidiary to pursue
nonregulated, primarily energy-related business ventures designed to supplement
the growth from the electric utility operations. We had a total equity
investment in KLT of $41 million as of December 31, 1995, and anticipate that
investment to grow to about $165 million within the next five years. KLT's
strategy capitalizes on new market opportunities by combining our expertise in
energy-related fields with the knowledge of our joint venture partners.
KLT was very active in 1995, growing from about $90 million in
consolidated assets as of December 31, 1994, to $164 million by December 31,
1995. During 1995, KLT continued to develop existing ventures in domestic and
international nonregulated power production, energy services, oil and gas
reserves, and affordable housing limited partnerships. Within the next five
years, we anticipate total subsidiary assets will exceed $500 million,
generated through the $165 million of equity investment, subsidiary retained
earnings and borrowings.
EARNINGS OVERVIEW
Earnings per share (EPS) for 1995 of $1.92 increased $0.28 from 1994.
This increase was due mostly to 1994's one-time $22.5 million ($0.22 per share)
charge for the voluntary early retirement program (see Note 2 to the
Consolidated Financial Statements). Other factors increasing 1995 EPS included
load growth, warmer summer temperatures, savings from the 1994 early retirement
program and a net gain of $0.05 per share from the sale of railcars. Partially
offsetting these increases, 1995 EPS also reflected decreased bulk power sales,
higher fuel and purchased power costs as a result of a forced outage at a coal
plant, and KCPL's share of Wolf Creek Generating Station's (Wolf Creek)
voluntary early retirement program costs. Savings from Wolf Creek's early
retirement program are expected to offset program costs in less than two years.
Despite the voluntary early retirement charge recorded in 1994, EPS for
1994 decreased only $0.02 from 1993 to $1.64. Warmer summer temperatures,
record bulk power sales, lower delivered coal costs and lower average interest
rates increased 1994 EPS.
MEGAWATT-HOUR (MWH) SALES AND ELECTRIC OPERATING REVENUES
Sales and revenue data:
Increase (Decrease) from Prior Year
1995 1994
Mwh Revenues Mwh Revenues
(revenue change in millions)
Retail:
Residential 6 % $17 2 % $ 1
Commercial 3 % 9 3 % 1
Industrial - % (1) 2 % (5)
Other (6)% - (4)% -
Total retail 3 % 25 2 % (3)
Sales for resale:
Bulk power sales (15)% (11) 27 % 15
Other (11)% - (20)% (1)
Total 14 11
Other revenues 4 -
Total electric operating revenues $18 $11
Effective January 1, 1994, Missouri retail rates were reduced 2.66%, or
about $12.5 million per year, resulting from the end of the Wolf Creek rate
phase-in amortization. About two-thirds of KCPL's retail sales are to Missouri
customers. Other rate tariffs have not changed materially since 1988, however,
the amortization of the Regulatory Asset _ Deferred Wolf Creek Costs ends in
1996 and may result in a future rate adjustment.
While overall weather remained mild during the last three years, closer to
normal temperatures and continued load growth increased retail mwh sales and
revenues during 1995. Twice during July and once during December, customer
demand for power reached record one-hour seasonal peaks. Load growth and
improved weather patterns also contributed to 1994 increases in residential and
commercial revenues despite the Missouri rate reduction.
Industrial revenues for both 1995 and 1994 were reduced by the effect of
customized long-term sales contracts with major industrial customers. These
contracts were tailored to meet customers' needs in exchange for their long-
term commitment to purchase energy. Long-term contracts are in place or under
negotiation for a large portion of KCPL's industrial sales. In addition to
these contracts, 1994 industrial revenues decreased from 1993 due to the
Missouri rate reduction and load management curtailment credits. The contracts
and curtailment credits were designed to enhance KCPL's competitive position,
improve overall power generating efficiencies and load factors while providing
short-term and long-term capacity savings.
Bulk power sales vary with system requirements, generating unit and
purchased power availability, fuel costs and the requirements of other electric
systems. Starting in September 1995, transmission service revenues have been
reflected as other electric revenues. A combination of conditions in 1994
contributed to record bulk power sales in that year.
Total revenue per mwh sold varies with changes in the mix of mwh sales
among customer classifications and the effect of declining price per mwh as
usage increases. An automatic fuel adjustment provision is included in only
sales for resale tariffs, which apply to less than 1% of revenues.
Future mwh sales and revenues per mwh will be affected by national and
local economies, weather and customer conservation efforts. Competition,
including alternative sources of energy such as natural gas, cogeneration, IPPs
and other electric utilities, may also affect future sales and revenue.
FUEL AND PURCHASED POWER
Combined fuel and purchased power expenses for 1995 increased from 1994
despite a 2% decrease in total mwh sales (total of retail and sales for resale)
due to the factors discussed below.
While nuclear fuel costs remain substantially less than the price of coal,
the cost of nuclear fuel increased 15% from 1994 and 20% from 1993. Nuclear
fuel costs averaged only 45% of the price of coal during 1995, compared with
40% during 1994 and 35% during 1993. We expect this relationship to steadily
increase to around 55% to 60% by 1998 and remain in that range through the year
2000. During 1995, coal represented about 70% of generation and nuclear fuel
about 30%.
Purchased power expenses included additional capacity purchase contracts
which provide a cost-effective alternative to constructing new capacity. These
purchases contributed to increasing purchased power expenses since 1993.
During July 1995, a fire forced an outage at LaCygne I, a low-cost, coal-
fired generating unit. We replaced the power by increasing the usage of higher-
cost, coal-fired units and purchasing power on the wholesale market. Damage to
the unit was covered by insurance but uninsured, incremental fuel and purchased
power costs were about $4 million.
A $3 million difference in coal inventory adjustments caused a 1995
increase in fuel costs from both 1994 and 1993.
The price of delivered coal in 1995 remained comparable with 1994 prices
which had decreased about 8% from 1993. Our coal procurement strategies
continue to provide coal costs well below the regional average. We expect to
maintain coal costs at or below 1995 levels through the year 2000.
Although 1994 total mwh sales increased 8% from 1993, combined fuel and
purchased power costs increased only 5% during the same period. This was
mostly due to the reduction in 1994 coal costs, partially offset by the
increasing cost of nuclear fuel and additional capacity purchase contracts.
Compared with the prior year, coal costs in 1994 benefited from lower freight
rates and our ability to obtain coal on the spot market at prices below long-
term contract rates. Purchased power costs in 1994 also benefited from a $2
million reduction in replacement power expenses reflecting Wolf Creek's 47 day
refueling and maintenance outage versus the 73 day refueling outage in 1993.
OTHER OPERATION AND MAINTENANCE EXPENSES
Combined other operation and maintenance expenses for 1994 were higher
than either 1995 or 1993 mainly due to the costs of the voluntary early
retirement program in that year. Total program costs of $22.5 million ($0.22
per share) were expensed during 1994. Savings, after the June 1994 retirements
are expected to recover program costs in less than two years.
The decrease in 1995 expenses from 1994 was partially offset by KCPL's $2
million share of Wolf Creek's voluntary early retirement program recorded
during 1995. Similar to KCPL's program, this charge is expected to be
recovered within two years through reduced salaries and benefits. Other cost
increases in 1995 resulted from the timing of scheduled maintenance programs.
We continue to emphasize new technologies, improved methods and cost
control. We are changing processes to provide increased efficiencies and
improved operations. Through the use of cellular technology, a majority of
customer meters will be read automatically by the end of 1996. These types of
changes have allowed us to assimilate work performed by those who elected to
participate in the early retirement program.
INCOME TAXES
During 1995, we reached a settlement with the Internal Revenue Service
(IRS) regarding issues arising from an audit of the 1985 through 1988 tax
returns. Based on this settlement, we transferred about $10 million from
deferred income taxes and investment tax credits to accrued taxes.
GENERAL TAXES
Components of general taxes:
1995 1994 1993
(thousands)
Property $ 46,019 $ 46,895 $ 45,545
Gross receipts 41,416 40,397 40,659
Other 9,386 9,070 9,455
Total $ 96,821 $ 96,362 $ 95,659
OTHER INCOME
Miscellaneous expense _ net during 1995 increased due to the $5 million
gain on the sale of 505 steel railcars. We replaced the steel cars with
lighter-weight aluminum cars which offer more coal capacity contributing to
lower delivered coal prices. This gain is partially offset by increases in
charitable contributions and fees related to the sale of customer accounts
receivable.
Nonoperating income taxes for 1995 and 1994 reflect $7 and $1 million,
respectively, in tax reductions from affordable housing and rehabilitation
credits, and interest deductions related to subsidiary obligations. Nontaxable
increases in the cash surrender value of corporate-owned life insurance
contracts also affect the relationship between miscellaneous income and income
taxes.
INTEREST CHARGES
Interest expense increased during 1995 reflecting higher average levels of
long-term debt outstanding and higher weighted-average interest rates. The
higher average level of outstanding debt is primarily due to subsidiary
investments in affordable housing partnerships. The tax benefits provided by
these investments essentially offset the related increase in interest expense.
Interest expense decreased in 1994 from 1993 reflecting lower average
interest rates and the repayment or refinancing of debt.
The average interest rate on long-term debt, including current maturities,
was 6.0% in 1995 compared to 5.4% in 1994 and 6.0% in 1993.
WOLF CREEK
Wolf Creek is one of KCPL's principal generating units representing about
18% of accredited generating capacity. The plant's operating performance has
remained strong, contributing about 27% of the annual mwh generation while
operating at an average capacity of 88% over the last three years. It has the
lowest fuel cost of any of KCPL's generating units. During 1994, Wolf Creek
finished its seventh scheduled refueling and maintenance outage in 47 days, a
plant record. The plant's eighth refueling and maintenance outage began
February 3, 1996.
Wolf Creek's assets and operating expenses represent about 45% and 20% of
total assets and operating expenses, respectively. Currently, no major
equipment replacements are expected, but an extended shut-down of the unit
could have a substantial adverse effect on KCPL's business, financial condition
and results of operations. Higher replacement power and other costs would be
incurred as a result. Although not expected, an unscheduled plant shut-down
could be caused by actions of the Nuclear Regulatory Commission reacting to
safety concerns at the plant or other similar nuclear units. If a long-term
shut-down occurred, the state regulatory commissions could consider reducing
rates by excluding the Wolf Creek investment from rate base.
Ownership and operation of a nuclear generating unit exposes KCPL to
potential retrospective assessments and property losses in excess of insurance
coverage. These risks are more fully discussed in Note 4 to the Consolidated
Financial Statements _ Commitments and Contingencies _ Nuclear Liability and
Insurance.
ENVIRONMENTAL MATTERS
Our policy is to act in an environmentally responsible manner and use the
latest technology available to avoid and treat contamination. We continually
conduct environmental audits designed to ensure compliance with governmental
regulations and detect contamination. However, these regulations are
constantly evolving; governmental bodies may impose additional or more rigid
environmental regulations which could require substantial changes to operations
or facilities.
The Clean Air Act Amendments of 1990 contain two programs significantly
affecting the utility industry. We have spent about $5 million for the
installation of continuous emission monitoring equipment to satisfy the
requirements under the acid rain provision. Future acid rain program
regulations may require further capital expenditures, which cannot be estimated
at this time. The other utility-related program calls for a study of certain
air toxic substances. Based on the outcome of this study, regulation of these
substances, including mercury, could be required. We cannot predict the
likelihood of any such regulations or compliance costs.
PROJECTED CONSTRUCTION EXPENDITURES
Total utility capital expenditures, excluding allowance for funds used
during construction, were $134 million in 1995. The utility construction
expenditures are projected for the next five years as follows:
Construction Expenditures
1996 1997 1998 1999 2000 Total
(millions)
Generating facilities $ 38 $ 35 $ 32 $30 $ 25 $160
Nuclear fuel 2 21 20 4 23 70
Transmission facilities 13 8 8 15 12 56
Distribution and
general facilities 62 56 45 43 42 248
Total $115 $120 $105 $92 $102 $534
We are fully exploring alternatives to new construction. During 1995, we
entered into an operating lease for a new 142 mw combustion turbine, scheduled
to be placed in service during 1997. We have also contracted to purchase
capacity through fixed-price agreements (see Note 4 to the Consolidated
Financial Statements _ Capacity Purchase Commitments). Compared to the long-
term fixed costs of building new capacity, these contracts provide a cost-
effective way of meeting uncertain levels of demand growth, even though there
are risks associated with market price fluctuations. This construction
expenditure plan is subject to continual review and change. The next plan will
be filed with the Missouri commission in July 1997.
CAPITAL REQUIREMENTS AND LIQUIDITY
We expect to meet the utility construction budget with internally-
generated funds. The $291 million of maturing debt through the year 2000 will
be provided from operations, refinancings or short-term debt. As of December
31, 1995, KCPL had $98 million of registered but unissued medium-term notes and
$139 million of unused bank lines of credit. Uncertainties affecting our
ability to meet these requirements with internally-generated funds include the
effect of inflation on operating expenses, the level of mwh sales, regulatory
actions, compliance with future environmental regulations and the availability
of generating units. We might incur additional debt and/or issue additional
equity to finance growth or take advantage of new opportunities.
We use an accelerated depreciation method for tax purposes. Use of this
method on the Wolf Creek plant reduced tax payments by about $30 million per
year, ending in 1994. We are implementing various tax planning strategies to
minimize future tax payments resulting from the loss of this depreciation
deduction.
NEW ACCOUNTING STANDARD _ STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-lived Assets. This statement is
effective for fiscal years beginning after December 15, 1995 and requires a
write-down of assets that are no longer probable of recovery through future
revenues. Adoption of this standard will not have a material impact on KCPL's
financial position or results of operations. See the Regulation and
Competition discussion of regulatory assets and FASB 71.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1995 1994 1993
(thousands)
ELECTRIC OPERATING REVENUES $885,955 $868,272 $857,450
OPERATING EXPENSES
Operation
Fuel 139,371 135,106 130,117
Purchased power 38,783 33,929 31,403
Other 178,599 202,304 184,633
Maintenance 78,439 72,468 78,550
Depreciation 97,225 94,361 91,110
Income taxes 77,062 70,949 69,502
General taxes 96,821 96,362 95,659
Amortization of:
MPSC rate phase-in plan 0 0 7,072
Deferred Wolf Creek costs 12,607 13,102 13,102
Total 718,907 718,581 701,148
OPERATING INCOME 167,048 149,691 156,302
OTHER INCOME
Allowance for equity funds
used during construction 2,279 2,087 2,846
Miscellaneous expense - net (2,478) (4,159) (2,486)
Income taxes 10,259 4,572 1,549
Total 10,060 2,500 1,909
INCOME BEFORE INTEREST CHARGES 177,108 152,191 158,211
INTEREST CHARGES
Long-term debt 52,184 43,962 50,118
Short-term debt 1,189 1,170 750
Miscellaneous 3,112 4,128 4,113
Allowance for borrowed funds
used during construction (1,963) (1,844) (2,542)
Total 54,522 47,416 52,439
Net Income 122,586 104,775 105,772
Preferred Stock
Dividend Requirements 4,011 3,457 3,153
Earnings Available for
Common Stock $118,575 $101,318 $102,619
Average Number of Common
Shares Outstanding 61,902 61,903 61,909
Earnings per Common Share $1.92 $1.64 $1.66
Cash Dividends per
Common Share $1.54 $1.50 $1.46
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31
1995 1994 1993
(thousands)
Beginning Balance $426,738 $418,201 $405,985
Net Income 122,586 104,775 105,772
549,324 522,976 511,757
Dividends Declared
Preferred stock - at required rates 4,029 3,384 3,169
Common stock 95,329 92,854 90,387
Ending Balance $449,966 $426,738 $418,201
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31 December 31
1995 1994
(thousands)
ASSETS
UTILITY PLANT, at original cost
Electric $3,388,538 $3,330,478
Less-accumulated depreciation 1,156,115 1,092,436
Net utility plant in service 2,232,423 2,238,042
Construction work in progress 72,365 57,294
Nuclear fuel, net of amortization of
$81,452 and $66,773 54,673 40,806
Total 2,359,461 2,336,142
REGULATORY ASSET - DEFERRED WOLF CREEK COSTS 8,880 18,752
REGULATORY ASSET - RECOVERABLE TAXES 123,000 120,000
INVESTMENTS AND NONUTILITY PROPERTY 166,751 98,429
CURRENT ASSETS
Cash and cash equivalents 28,390 20,217
Customer accounts receivable 32,830 24,513
Other receivables 31,838 22,604
Fuel inventories, at average cost 22,103 16,570
Materials and supplies, at average cost 47,175 44,953
Deferred income taxes 5,947 1,444
Other 5,179 5,138
Total 173,462 135,439
DEFERRED CHARGES
Regulatory assets
Settlement of fuel contracts 13,007 16,625
KCC Wolf Creek carrying costs 4,104 6,839
Other 21,231 27,909
Other deferred charges 12,610 10,262
Total 50,952 61,635
Total $2,882,506 $2,770,397
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statements) $1,824,087 $1,763,765
CURRENT LIABILITIES
Notes payable to banks 0 1,000
Commercial paper 19,000 31,000
Current maturities of long-term debt 73,803 33,419
Accounts payable 52,506 73,486
Accrued taxes 39,726 24,684
Accrued interest 16,906 12,209
Accrued payroll and vacations 22,764 19,594
Accrued refueling outage costs 13,563 2,120
Other 11,787 7,644
Total 250,055 205,156
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 648,374 644,139
Deferred investment tax credits 71,270 82,840
Other 88,720 74,497
Total 808,364 801,476
COMMITMENTS AND CONTINGENCIES (note 4)
Total $2,882,506 $2,770,397
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1995 1994 1993
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $122,586 $104,775 $105,772
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 97,225 94,361 91,110
Amortization of:
Nuclear fuel 14,679 10,136 8,705
Deferred Wolf Creek costs 12,607 13,102 13,102
MPSC rate phase-in plan 0 0 7,072
Other 8,152 9,608 8,234
Deferred income taxes (net) (3,268) 20,524 25,502
Deferred investment tax credit
amortization and reversals (11,570) (4,345) (4,345)
Allowance for equity funds used
during construction (2,279) (2,087) (2,846)
Cash flows affected by changes in:
Receivables (17,551) 1,543 (10,245)
Fuel inventories (5,533) (2,020) 6,075
Materials and supplies (2,222) (796) 1,106
Accounts payable (20,980) 14,065 (17,741)
Accrued taxes 15,042 (3,116) 7,936
Accrued interest 4,697 (3,366) 2,626
Wolf Creek refueling outage accrual 11,443 (5,142) (5,338)
Pension and postretirement benefit
obligations (4,176) 32,203 1,905
Other operating activities 4,325 (2,860) 4,514
Net cash from operating activities 223,177 276,585 243,144
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (134,070) (124,965) (129,199)
Allowance for borrowed funds used
during construction (1,963) (1,844) (2,542)
Purchases of investments (56,759) (67,560) (7,351)
Other investing activities 9,046 5,624 7,657
Net cash used in investing
activities (183,746) (188,745) (131,435)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 111,055 133,793 324,846
Repayment of long-term debt (33,428) (170,170) (271,480)
Special deposits 0 60,118 (60,118)
Premium on reacquired long-term debt 0 0 (4,077)
Net change in short-term borrowings (13,000) 3,000 (4,000)
Dividends paid (99,358) (96,238) (93,556)
Other financing activities 3,473 335 (1,913)
Net cash used in financing
activities (31,258) (69,162) (110,298)
NET CHANGE IN CASH AND CASH
EQUIVALENTS 8,173 18,678 1,411
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 20,217 1,539 128
CASH AND CASH EQUIVALENTS
AT END OF YEAR $28,390 $20,217 $1,539
CASH PAID DURING THE YEAR FOR:
Interest (net of amount capitalized) $48,200 $48,246 $47,361
Income taxes $67,053 $53,720 $40,141
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31 December 31
1995 1994
(thousands)
COMMON STOCK EQUITY
Common stock-150,000,000 shares authorized
without par value-61,908,726 shares issued,
stated value $449,697 $449,697
Retained earnings (see statements) 449,966 426,738
Capital stock premium and expense (1,725) (1,736)
Total 897,938 874,699
CUMULATIVE PREFERRED STOCK
$100 Par Value
3.80% - 100,000 shares issued 10,000 10,000
4.50% - 100,000 shares issued 10,000 10,000
4.20% - 70,000 shares issued 7,000 7,000
4.35% - 120,000 shares issued 12,000 12,000
No Par Value
4.39%* - 500,000 shares issued 50,000 50,000
$100 Par Value - Redeemable
4.00% - 14,357 and 15,957 shares issued 1,436 1,596
Total 90,436 90,596
LONG-TERM DEBT (excluding current maturities)
General Mortgage Bonds
Medium-term Notes due 1997-2008, 6.72% and
6.82% weighted-average rate at December 31 387,000 395,500
4.77%* Environmental Improvement Revenue
Refunding Bonds due 2012-23 158,768 158,768
Guaranty of Pollution Control Bonds
4.24%* due 2015-17 196,500 196,500
Subsidiary Obligations
Affordable Housing Notes due 2000-05, 8.54%
and 8.38% weighted-average rate at
December 31 69,945 47,702
Bank Credit Agreement due 1998, 7.66%
weighted-average rate at December 31 23,500 0
Total 835,713 798,470
Total $1,824,087 $1,763,765
* Variable rate securities, weighted-average rate as of December 31, 1995
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Kansas City Power & Light Company is a medium-sized electric utility with
more than 430,000 customers in western Missouri and eastern Kansas. About 95%
of our retail revenues are from the Kansas City metropolitan area, an
agribusiness center and major regional center for wholesale, retail and service
companies. About two-thirds of our retail sales are to Missouri customers, the
remainder to Kansas customers.
The consolidated financial statements include the accounts of Kansas City
Power & Light Company and KLT Inc., a wholly-owned, nonutility subsidiary. The
consolidated entity is referred to as KCPL. KLT was formed in 1992 as a
holding company for various nonregulated business ventures. Currently, the
electric utility accounts for about 95% of consolidated assets and
substantially all results of operations. Intercompany balances and
transactions have been eliminated. KLT's revenues and expenses have been
classified as Other Income and Interest Charges in the income statement.
The accounting records conform to the accounting standards prescribed by
the Federal Energy Regulatory Commission (FERC) and generally accepted
accounting principles. These standards require the use of estimates and
assumptions that affect amounts reported in the financial statements and the
disclosure of commitments and contingencies.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid investments with
original maturities of three months or less.
Fair Value of Financial Instruments
The stated values of financial instruments as of December 31, 1995 and
1994 approximate fair market values. KCPL's incremental borrowing rate for
similar debt was used to determine fair value if quoted market prices were not
available.
Investments in Affordable Housing Limited Partnerships
Through December 31, 1995, a subsidiary of KLT had invested $95 million in
affordable housing limited partnerships. About $80 million of these
investments are recorded at cost; the equity method was used for the remainder.
Tax credits are recognized in the year generated. A change in accounting
principle relating to investments made after May 19, 1995, requires limited
partnership investments of more than 5% to use the equity method. Of the
investments recorded at cost, $70 million exceeded this 5% level but were made
prior to May 19, 1995.
Utility Plant
Utility plant is stated at historical costs of construction. These costs
include taxes, an allowance for funds used during construction (AFDC) and
payroll-related costs including pensions and other fringe benefits. Additions
of, and replacements and improvements to units of property are capitalized.
Repairs of property and replacements of items not considered to be units of
property are expensed as incurred (except as discussed under Wolf Creek
Refueling Outage Costs). When property units are retired or otherwise
disposed, the original cost, net of salvage and removal, is charged to
accumulated depreciation.
AFDC represents the cost of borrowed funds and a return on equity funds
used to finance construction projects. It is capitalized as a cost of
construction work in progress. AFDC on borrowed funds reduces interest
charges. AFDC on equity funds is shown as a noncash item of other income.
When a construction project is placed in service, the related AFDC, as well as
other construction costs, is used to establish rates under regulatory rate
practices. The rates used to compute gross AFDC are compounded semi-annually
and averaged 8.7% for 1995, 7.8% for 1994 and 8.3% for 1993.
Depreciation is computed using the straight-line method over the estimated
lives of depreciable property based on rates approved by state regulatory
authorities. Average annual composite rates were about 2.9% for each of the
last three years.
Wolf Creek Refueling Outage Costs
Forecasted incremental costs to be incurred during scheduled Wolf Creek
Generating Station (Wolf Creek) refueling outages are accrued monthly over the
unit's operating cycle, normally about 18 months. Estimated incremental costs,
which include operating, maintenance and replacement power expenses, are based
on budgeted outage costs and the estimated outage duration. Changes to or
variances from those estimates are recorded when known or probable.
Nuclear Plant Decommissioning Costs
Estimated decommissioning costs for Wolf Creek were revised in 1994 by the
Missouri Public Service Commission (MPSC) and the Kansas Corporation Commission
(KCC). The estimates for decontamination, dismantlement and site restoration
costs were based on the immediate dismantlement method. Plant decommissioning
is not expected to start before 2025. The following table shows each
commission's estimated costs and assumptions (in 1993 dollars):
KCC MPSC
Undiscounted decommissioning costs:
Total Station $1.3 billion $1.8 billion
47% share $595 million $859 million
Discounted decommissioning costs:
Total Station $370 million $370 million
47% share $174 million $174 million
Annual escalation factor 3.45% 4.50%
Annual return on trust assets 6.48% 7.66%
These estimated costs are higher than prior estimates mainly due to large
increases in assumed disposal costs for low-level radioactive waste.
Previously, total discounted decommissioning costs were estimated by the KCC in
1989 to be $206 million (in 1988 dollars) and, by the MPSC in 1992 to be
$347 million (in 1990 dollars). Updated estimates are filed with the
commissions every three years. The next updated study will be filed during
1996.
We contribute to a tax-qualified trust fund (about $3 million for each of
the last three years) to be used to decommission Wolf Creek. These costs are
charged to other operation expenses and recovered in rates over the unit's
expected life. Annual contributions are expected to increase slightly
beginning in 1997.
As of December 31, 1995 and 1994, the trust fund balance, including
reinvested earnings, was $26 and $19 million, respectively. These amounts are
reflected in Investments and Nonutility Property. The related liabilities for
decommissioning are included in Deferred Credits and Other Liabilities - Other.
The Financial Accounting Standards Board (FASB) is currently reviewing the
accounting for nuclear plant decommissioning obligations including the balance
sheet presentation of estimated decommissioning costs.
Nuclear Fuel
Nuclear fuel is amortized to fuel expense based on the quantity of heat
produced for the generation of electricity. Under the Nuclear Waste Policy Act
of 1982, the Department of Energy (DOE) is responsible for the permanent
disposal of spent nuclear fuel. We pay the DOE a quarterly fee of one-tenth
of a cent for each kilowatt-hour of net nuclear generation for future disposal
of spent nuclear fuel. These disposal costs are charged to fuel expense and
recovered through rates.
A permanent disposal site may not be available for the industry until 2010
or later, although an interim facility may be available earlier. Under current
DOE policy, once a permanent site is available, the DOE will accept spent
nuclear fuel on a priority basis; the owners of the oldest spent fuel will be
given the highest priority. As a result, disposal services for Wolf Creek may
not be available prior to 2016. Wolf Creek has an on-site, temporary storage
facility for spent nuclear fuel. Under current regulatory guidelines, this
facility can provide storage space until about 2006. Management believes
additional temporary storage space can be built or obtained as necessary.
Regulatory Assets
We currently apply accounting standards that recognize the economic
effects of rate regulation. Rates are designed to recover the cost of providing
service. As a result, certain items that would normally be reflected in the
income statement are deferred on the balance sheet. These items are then
amortized as the related amounts are recovered from customers through rates.
We recognize regulatory assets when allowed by a commission's rate order
or when it is probable, based on regulatory precedent, that future rates will
recover the amortization of the deferred costs. If future recovery is no
longer probable due to the effects of increased competition or other factors,
the write-off of the unamortized balance, net of the related tax benefit, would
reduce net income.
Deferred Wolf Creek Costs
The KCC and MPSC allowed continued construction accounting for
ratemaking purposes after Wolf Creek's 1985 commercial in-service date.
Certain other carrying costs were also deferred. The deferrals are being
amortized and recovered in rates through 1996.
Recoverable Taxes
See the following Income Taxes note.
Settlement of Fuel Contracts
We deferred the cost of terminating certain coal purchase contracts.
These costs are being amortized over various periods ending in 2002.
KCC Wolf Creek Carrying Costs
The KCC ordered certain Wolf Creek carrying costs to be deferred.
These costs are being recovered and amortized over six years ending in
June 1997.
MPSC Rate Phase-in Plan
Under the MPSC Wolf Creek rate phase-in plan, we deferred a cash
recovery of a portion of the cost of equity plus carrying costs on the
deferral. The amortization and recovery were completed in December 1993,
resulting in a 2.66% rate reduction (about $12.5 million per year)
effective January 1, 1994.
Other
Other regulatory assets include premium on redeemed debt, deferred
costs to decommission and decontaminate federal uranium enrichment
facilities and other costs. These deferrals are amortized over various
periods extending to 2023.
Revenue Recognition
We use cycle billing and accrue an estimate for unbilled revenue at the
end of each reporting period.
Income Taxes
The balance sheet includes deferred income taxes for all temporary
differences between the tax basis of an asset or liability and that reported in
the financial statements. These deferred tax assets and liabilities are
determined using the tax rates scheduled by the tax law to be in effect when
the differences reverse.
The Regulatory Asset - Recoverable Taxes mainly reflects the future
revenue requirements necessary to recover the tax benefits of existing
temporary differences previously passed through to customers. Operating income
tax expense is recorded based on ratemaking principles. However, if the method
used for the balance sheet were reflected in the income statement, net income
would remain the same.
Investment tax credits are deferred when utilized and amortized to income
over the remaining service lives of the related properties.
Environmental Matters
Environmental costs are accrued when it is probable a liability has been
incurred and the amount of the liability can be reasonably estimated. We
believe all appropriate costs related to environmental matters have been
recorded.
2. PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Early Retirement Program
On June 30, 1994, 332 employees retired under a voluntary early retirement
plan. We expensed estimated program costs of $14.0 million ($0.14 per share)
during the first quarter of 1994 and $10.2 million ($0.10 per share) during the
second quarter. Based on a final actuarial valuation, a $1.7 million ($0.02
per share) reduction in expense was recorded during the fourth quarter of 1994.
This resulted in total KCPL pension and postretirement program costs of $16.5
and $6.0 million, respectively ($0.22 per share).
Pension Plans
KCPL has defined benefit pension plans for its employees, including
officers. Benefits under these plans reflect the employee's compensation,
years of service and age at retirement. KCPL satisfies at least the minimum
funding requirements under the Employee Retirement Income Security Act of 1974.
Funded status of the plans:
December 31 1995 1994
(thousands)
Accumulated benefit obligation:
Vested $251,042 $219,111
Nonvested 6,474 4,595
Total $257,516 $223,706
Determination of plan assets less obligations:
Fair value of plan assets (a) $339,236 $301,245
Projected benefit obligation (b) 315,395 269,124
Difference $ 23,841 $ 32,121
Reconciliation of difference:
Accrued trust liability $(13,890) $(18,401)
Unrecognized transition obligation 12,612 14,684
Unrecognized net gain 29,293 39,570
Unrecognized prior service cost (4,174) (3,732)
Difference $ 23,841 $ 32,121
(a) Plan assets are invested in insurance contracts, corporate bonds, equity
securities, U.S. Government securities, notes, mortgages and short-term
investments.
(b) Based on discount rates of 7.5% in 1995 and 8.5% in 1994; and increases in
future salary levels of 4% to 5% in 1995 and 1994.
Components of provisions for pensions (excluding 1994 early retirement program
costs):
1995 1994 1993
(thousands)
Service cost $ 6,414 $ 8,193 $ 8,671
Interest cost on projected benefit
obligation 22,593 20,759 19,521
Actual return on plan assets (50,108) (1,143) (49,875)
Other 25,656 (22,297) 27,715
Net periodic pension cost $ 4,555 $ 5,512 $ 6,032
Long-term rates of return on plan assets of 8.5% were used.
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, certain postretirement health
care and life insurance benefits are provided for substantially all retired
employees.
Although we accrue the cost of postretirement health care and life
insurance benefits during an employee's years of service, the costs are
currently recovered through rates as they are paid (pay-as-you-go). In 1995 we
began funding the year's overall net periodic postretirement benefit cost,
subject to maximum deductible limits for income tax purposes.
Reconciliation of postretirement benefits to amounts recorded in the balance
sheets:
December 31 1995 1994
(thousands)
Accumulated postretirement benefit
obligation (APBO) (a):
Retirees $ 22,515 $20,813
Fully eligible active plan participants 2,659 1,304
Other active plan participants 9,315 7,159
Total APBO 34,489 29,276
Fair value of plan assets (b) (2,189) -
Unrecognized transition obligation (19,965) (21,139)
Unrecognized net gain (loss) 892 5,220
Unrecognized prior service cost (786) (863)
Accrued postretirement benefit obligation
(included in Deferred Credits
and Other Liabilities - Other) $ 12,441 $12,494
(a) Based on weighted-average discount rates of 7.5% in 1995 and 8.5% in 1994;
and increases in future salary levels of 4% in 1995 and 4% to 5% in 1994.
(b) Plan assets are invested in certificates of deposit.
Net periodic postretirement benefit cost (excluding 1994 early retirement
program costs):
1995 1994 1993
(thousands)
Service cost $ 435 $ 645 $ 616
Interest cost on APBO 2,423 2,305 1,893
Amortization of unrecognized
transition obligation 1,175 1,175 1,175
Other (60) 75 -
Net periodic postretirement benefit cost $3,973 $4,200 $3,684
Actuarial assumptions include an increase in the annual health care cost
trend rate for 1996 of 11%, decreasing gradually over a five-year period to its
ultimate level of 6%. The health care plan requires retirees to share in the
cost when premiums exceed a certain amount. Because of this provision, an
increase in the assumed health care cost trend rate by 1% per year would only
increase the APBO as of December 31, 1995 by about $777,000 and the combined
service and interest costs of the net periodic postretirement benefit cost for
1995 by about $89,000.
Long-term Incentive Plan
KCPL has a Long-term Incentive Plan for officers and key employees.
Awards issued under the Plan cannot exceed 3 million common stock shares.
Stock options granted under the Plan provide for recipients to receive
shares of stock and accumulated dividends (as though they had been reinvested)
if the market price at the time of exercise equals or exceeds the grant price.
The options expire 10 years after the grant date. Because of the dividend
provision, we expensed $1.0, $0.4 and $0.1 million for 1995, 1994 and 1993,
respectively. The expense includes accumulated and reinvested dividends plus
the appreciation in stock price since the grant date. If the stock price falls
below the grant price, the cumulative expense related to those options is
reversed.
Stock options are summarized below:
1995 1994 1993
(shares under option)
Balance as of January 1 197,375 145,125 86,000
Granted 68,750 69,125 63,125
Exercised - (6,000) -
Canceled - (10,875) (4,000)
Balance as of December 31 266,125 197,375 145,125
Exercisable as of December 31 162,813 102,125 41,000
Weighted-average grant price as of
December 31 $ 22.178 $ 21.870 $22.604
Option price of shares exercised $ - $ 21.625 $ -
3. INCOME TAXES
Income tax expense consisted of the following:
1995 1994 1993
(thousands)
Current income taxes:
Federal $69,697 $42,736 $41,207
State 11,944 7,462 5,589
Total 81,641 50,198 46,796
Deferred income taxes, net:
Federal (3,152) 17,005 22,274
State (116) 3,519 3,228
Total (3,268) 20,524 25,502
Investment tax credit amortization
and reversals (11,570) (4,345) (4,345)
Total income tax expense $66,803 $66,377 $67,953
KCPL's effective income tax rates differed from the statutory federal rates
mainly due to the following:
1995 1994 1993
Federal statutory income tax rate 35.0% 35.0% 35.0%
Differences between book and tax
depreciation not normalized 1.2 1.2 1.3
Amortization of investment tax credits (2.5) (2.5) (2.5)
Income tax credits (2.3) (0.2) -
State income taxes 4.1 4.2 3.3
Other (0.2) 1.1 2.0
Effective income tax rate 35.3% 38.8% 39.1%
The tax effects of major temporary differences resulting in deferred tax assets
and liabilities in the balance sheets are as follows:
December 31 1995 1994
(thousands)
Plant related $572,792 $580,964
Recoverable taxes 48,000 47,000
Other 21,635 14,731
Net deferred income tax liability $642,427 $642,695
The net deferred income tax liability consisted of the following:
December 31 1995 1994
(thousands)
Gross deferred income tax assets $(61,181) $(61,623)
Gross deferred income tax liabilities 703,608 704,318
Net deferred income tax liability $642,427 $642,695
4. COMMITMENTS AND CONTINGENCIES
Nuclear Liability and Insurance
Liability Insurance
The Price-Anderson Act currently limits the combined public liability of
nuclear reactor owners to $8.9 billion for claims that could arise from a
single nuclear incident. The owners of Wolf Creek (the Owners) carry the
maximum available commercial insurance of $0.2 billion. The remaining
$8.7 billion balance is provided by Secondary Financial Protection (SFP),
an assessment plan mandated by the Nuclear Regulatory Commission.
Under SFP, if there were a catastrophic nuclear incident involving any of
the nation's licensed reactors, the Owners would be subject to a maximum
retrospective assessment per incident of up to $79 million ($37 million,
KCPL's share). The Owners are jointly and severally liable for these
charges, payable at a rate not to exceed $10 million ($5 million, KCPL's
share) per incident per year, excluding applicable premium taxes. The
assessment, most recently revised in 1993, is subject to an inflation
adjustment every five years based on the Consumer Price Index.
Property, Decontamination and Premature Decommissioning Insurance
The Owners also carry $2.8 billion ($1.3 billion, KCPL's share) of
property damage, decontamination and premature decommissioning insurance
for loss resulting from damage to the Wolf Creek facilities. Nuclear
insurance pools provide $0.5 billion of coverage, while Nuclear Electric
Insurance Limited (NEIL) provides $2.3 billion.
In the event of an accident, insurance proceeds must first be used for
reactor stabilization and site decontamination. KCPL's share of any
remaining proceeds can be used for property damage and premature
decommissioning costs. Premature decommissioning coverage applies only if
an accident at Wolf Creek exceeds $500 million in property damage and
decontamination expenses.
Extra Expense Insurance - Including Replacement Power
The Owners also carry additional insurance from NEIL to cover costs of
replacement power and other extra expenses incurred in the event of a
prolonged outage resulting from accidental property damage at Wolf Creek.
Retrospective Assessments
Under all NEIL policies, KCPL is subject to retrospective assessments
if NEIL losses, for each policy year, exceed the accumulated funds
available to the insurer under that policy. The estimated maximum amount
of retrospective assessments to KCPL under the current policies could
total about $11 million.
Other
In the event of a catastrophic loss at Wolf Creek, the insurance
available may not be adequate to cover property damage and extra expenses
incurred. Uninsured losses, to the extent not recovered through rates,
would be assumed by KCPL and could have a material, adverse effect on our
financial condition and results of operations.
Nuclear Fuel Commitments
As of December 31, 1995, KCPL's portion of Wolf Creek nuclear fuel
commitments included $112 million for enrichment and fabrication through 2025
and $15 million for uranium concentrates through 2001.
Environmental Matters
KCPL's operations must comply with federal, state and local environmental
laws and regulations. The generation and transmission of electricity uses,
produces and requires disposal of certain products and by-products, including
polychlorinated biphenyl (PCBs), asbestos and other potentially hazardous
materials. The Federal Comprehensive Environmental Response, Compensation and
Liability Act (the Superfund law) imposes strict joint and several liability
for those who generate, transport or deposit hazardous waste. This liability
extends to the current property owner as well as prior owners since the time of
contamination. We continually conduct environmental audits designed to detect
contamination and ensure compliance with governmental regulations. However,
compliance programs needed to meet future environmental laws and regulations
governing water and air quality, including carbon dioxide emissions, hazardous
waste handling and disposal, toxic substances and the effects of
electromagnetic fields, could require substantial changes to operations or
facilities.
Long-term Coal Contracts
KCPL's share of coal purchased under long-term contracts was $42, $21 and
$17 million in 1995, 1994 and 1993, respectively. Under these coal contracts,
KCPL's remaining share of purchase commitments totals $118 million. Obligations
for the years 1996 through 2000 total $36, $26, $10, $9 and $9 million,
respectively. The remainder of our coal requirements are fulfilled through
spot market purchases.
Leases
KCPL has a transmission line lease with another utility whereby, with FERC
approval, the rental payments can be increased by the lessor. If this occurs,
we can cancel the lease if we are able to secure an alternative transmission
path. Commitments under this lease total $2 million per year and $56 million
over the remaining life of the lease if it is not canceled.
Rental expense for other leases including railcars, computer equipment,
buildings, a transmission line and other items was $18 to $20 million per year
during the last three years. The remaining rental commitments under these
leases total $182 million. Obligations for the years 1996 through 2000 average
$14 million per year. Capital leases are not material and are included in
these amounts.
As the managing partner of three jointly-owned generating units, we have
entered into leases for railcars to service those units. The entire lease
commitment is reflected in the above amounts although about $2 million per year
($31 million total) will be reimbursed by the other owners.
Purchased Capacity Commitments
We purchase capacity from other utilities and nonutility suppliers.
Purchased capacity gives us the option to purchase energy if needed or when
market prices are favorable. This provides a cost-effective alternative to new
construction. As of December 31, 1995, contracts to purchase capacity total
$288 million through 2016. During 1995, 1994 and 1993, capacity purchases were
$17, $13 and $10 million, respectively. For the years 1996 through 2000, these
commitments average $24 million per year. For each of the next five years, net
capacity purchases represent about 13% of KCPL's 1995 total available capacity.
5. SALE OF ACCOUNTS RECEIVABLE
As of December 31, 1995 and 1994, an undivided interest in $60 million of
designated customer accounts receivable was sold with limited recourse.
Related costs of $3.8, $2.8 and $2.2 million for 1995, 1994 and 1993,
respectively, were included in Miscellaneous expense - net.
6. SHORT-TERM BORROWINGS
Short-term borrowings consist of funds borrowed from banks or through the
sale of commercial paper as needed. The weighted-average interest rate on the
short-term debt outstanding as of December 31, 1995 and 1994 was 5.9% and 6.2%,
respectively. As of December 31, 1995, under minimal fee arrangements, unused
bank lines of credit totaled $139 million.
7. COMMON STOCK EQUITY, PREFERRED STOCK AND REDEEMABLE PREFERRED STOCK
Common Stock Equity
KCPL has shares of common stock registered with the Securities and
Exchange Commission for a Dividend Reinvestment and Stock Purchase Plan (the
Plan). The Plan allows common shareholders, directors and employees to purchase
shares of the common stock by reinvesting dividends or making optional cash
payments. We are currently purchasing shares for the Plan on the open market.
As of December 31, 1995, KCPL held 6,643 shares of its common stock to be
used for future distribution. These shares are included in Investments and
Nonutility Property.
The Restated Articles of Consolidation contain a restriction relating to
the payment of dividends in the event common equity falls to 25% of total
capitalization.
If preferred stock dividends are not declared and paid when scheduled,
KCPL could not declare or pay common stock dividends or purchase any common
shares. If the unpaid preferred stock dividends equal four or more full
quarterly dividends, the preferred shareholders, voting as a single class,
could elect members to the Board of Directors.
Preferred Stock and Redeemable Preferred Stock
Scheduled mandatory sinking fund requirements for the redeemable
4% Cumulative Preferred Stock are $160,000 per year. We have the option to
redeem the $90 million Cumulative Preferred Stock at prices approximating par
or stated value.
As of December 31, 1995, 0.4 million shares of $100 par Cumulative
Preferred Stock, 1.6 million shares of Cumulative No Par Preferred Stock and
11 million shares of no par Preference Stock were authorized.
8. LONG-TERM DEBT
General Mortgage Bonds
KCPL is authorized to issue mortgage bonds under the General Mortgage
Indenture and Deed of Trust dated December 1, 1986, as supplemented. The
Indenture creates a mortgage lien on substantially all utility plant.
As of December 31, 1995, $711 million general mortgage bonds were pledged
under the Indenture to secure the outstanding $613 million of medium-term notes
and revenue refunding bonds and the unissued $98 million of medium-term notes.
Interest Rate Swap and Cap Agreements
As of December 31, 1995, we had entered into eight interest rate swap
agreements and three cap agreements with financial institutions to limit the
interest rate on $150 million of long-term debt. The swap agreements mature
from 1996 through 1998 and effectively fix interest rates on $90 million of
variable- rate debt to a weighted-average rate of 3.7% as of December 31, 1995.
The cap agreements limit the interest rate on $60 million of variable-rate debt
to 5.0% expiring through 1998. There would have been no material effect had
the agreements been terminated at December 31, 1995 or 1994.
Subsidiary Obligations
During 1995, KLT entered into a long-term revolving line of credit
agreement for $65 million collateralized by the capital stock of KLT's direct
subsidiaries. The affordable housing notes are collateralized by the
affordable housing investments.
Scheduled Maturities
Long-term debt maturities for the years 1996 through 2000 are $74, $25,
$95, $43 and $54 million, respectively.
9. JOINTLY-OWNED ELECTRIC UTILITY PLANTS
Joint ownership agreements with other utilities provide undivided
interests in utility plants as of December 31, 1995 as follows (in millions of
dollars):
Wolf Creek LaCygne Iatan
Unit Units Unit
KCPL's share 47% 50% 70%
Utility plant in service $1,333 $ 287 $ 242
Estimated accumulated depreciation
(production plant only) $ 323 $ 163 $ 122
Nuclear fuel, net $ 55 $ - $ -
KCPL's accredited capacity-megawatts 548 672 469
Each owner must fund its own portion of the plant's operating expenses and
capital expenditures. KCPL's share of direct expenses is included in the
appropriate operating expense classifications in the income statement.
10. QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarter
1st 2nd 3rd 4th
(millions)
1995
Operating revenues $ 199 $ 205 $ 278 $ 204
Operating income 29 31 72 35
Net income 23 19 58 23
Earnings per common share $ 0.35 $ 0.29 $ 0.91 $ 0.37
Quarter
1st 2nd 3rd 4th
(millions)
1994
Operating revenues $ 199 $ 223 $ 254 $ 192
Operating income 21 36 61 32
Net income 10 25 50 20
Earnings per common share $ 0.15 $ 0.38 $ 0.80 $ 0.31
The quarterly data is subject to seasonal fluctuations with peak periods
occurring during the summer months. See Note 2 - Pension Plans and Other
Employee Benefits regarding the 1994 quarterly costs related to the early
retirement program.
11. AGREEMENT AND PLAN OF MERGER WITH UTILICORP UNITED INC.
On January 19, 1996, KCPL, UtiliCorp United Inc. (UtiliCorp) and KC United
Corp. (KCU) entered into an Agreement and Plan of Merger (the Merger Agreement)
which provides for a strategic business combination of KCPL and UtiliCorp in a
"merger-of-equals" transaction (the Transaction). Pursuant to the Merger
Agreement, KCPL and UtiliCorp will merge with and into KCU (which may be
renamed at the discretion of KCPL and UtiliCorp), a corporation formed for the
purpose of the Transaction. Under the terms of the Merger Agreement, each
share of KCPL common stock will be exchanged for one share of KCU common stock
and each share of UtiliCorp common stock will be exchanged for 1.096 shares of
KCU common stock. Based on the number of shares of KCPL common stock and
UtiliCorp common stock outstanding on the date of the Merger Agreement, KCPL's
common shareholders will receive about 55% of the common equity of KCU and
UtiliCorp's common shareholders will receive about 45%.
The Transaction is designed to qualify as a pooling of interests for
accounting and financial reporting purposes. Under this method, the recorded
assets and liabilities of KCPL and UtiliCorp would be carried forward to the
consolidated balance sheet of KCU at their recorded amounts. The income of KCU
would include the combined income of KCPL and UtiliCorp as though the
Transaction occurred at the beginning of the accounting period. Prior period
financial statements would be combined and presented as those of KCU.
The Transaction will create a diversified energy company with total
combined revenues of over $3.5 billion and over $6.5 billion in total assets,
serving about 2.5 million customers in the United States, Canada, the United
Kingdom, New Zealand, Australia, China and Jamaica. The business of the
combined companies will consist of electric utility operations, gas utility
operations and various nonutility enterprises including independent power
projects, and gas marketing, gathering and processing operations.
The Transaction is subject to approval by each company's shareholders and
a number of regulatory authorities. The regulatory approval process is expected
to take about 12 to 18 months. The Merger Agreement includes termination
provisions which may require certain payments to the other party to the
Transaction under certain circumstances, including a payment of $58 million if
the Transaction is terminated by a party and within two and one-half years
following such termination, the terminating party agrees to consummate or
consummates certain business combination transactions.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Kansas City Power & Light Company:
We have audited the consolidated financial statements of Kansas City Power
& Light Company and Subsidiary listed in the index on page 37 of this Form 10-
K. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kansas City
Power & Light Company and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
January 31, 1996
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information concerning directors required by Item
401 of Regulation S-K has been furnished by KCPL in its
Joint Proxy Statement and Prospectus filed with the
Securities and Exchange Commission on February 21, 1996,
pursuant to Regulation 14A under the Securities Exchange Act
of 1934, and is incorporated herein by reference.
Executive Officers
See Part I, page 6, entitled "Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K
has been furnished by KCPL in it's Joint Proxy Statement and
Prospectus filed with the Securities and Exchange Commission
on February 21, 1996, pursuant to Regulation 14A under the
Securities and Exchange Act of 1934, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 403 of Regulation S-K
has been furnished by KCPL in its Joint Proxy Statement and
Prospectus filed with the Securities and Exchange Commission
on February 21, 1996, pursuant to Regulation 14A under the
Securities and Exchange Act of 1934, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.EXHIBITS AND REPORTS ON FORM 8-K
Page
No.
Financial Statements
a. Consolidated Statements of Income and Consolidated 17
Statements of Retailed Earnings for the years ended
December 31, 1995, 1994, and 1993
b. Consolidated Balance Sheets - December 31, 1995, 18
and 1994
c. Consolidated Statements of Cash Flows for the years 19
ended December 31, 1995, 1994, and 1993
d. Consolidated Statements of Capitalization - 20
December 31, 1995 and 1994
e. Notes to Consolidated Financial Statements 21
f. Report of Independent Accountants 35
Exhibits
Exhibit
Number Description of Document
3-a *Restated Articles of Consolidation of KCPL
dated as of May 5, 1992 (Exhibit 4 to Registration
Statement, Registration No. 33-54196).
3-b *By-laws of KCPL, as amended and in effect on
June 15, 1995 (Exhibit 3-a to Form 10-Q dated
June 30, 1995).
4-a *General Mortgage and Deed of Trust dated as
of December 1, 1986, between KCPL and UMB Bank,
n.a. (formerly United Missouri Bank) of Kansas
City, N.A., Trustee (Exhibit 4-bb to Form 10-K for
the year ended December 31, 1986).
4-b *Third Supplemental Indenture dated as of
April 1, 1991, to Indenture dated as of December 1,
1986 (Exhibit 4-aq to Registration Statement,
Registration No. 33-42187).
4-c *Fourth Supplemental Indenture dated as of
February 15, 1992, to Indenture dated as of
December 1, 1986 (Exhibit 4-y to Form 10-K for year
ended December 31, 1991).
4-d *Fifth Supplemental Indenture dated as of
September 15, 1992, to Indenture dated as of
December 1, 1986 (Exhibit 4-a to Form 10-Q dated
September 30, 1992).
4-e *Sixth Supplemental Indenture dated as of
November 1, 1992, to Indenture dated as of
December 1, 1986 (Exhibit 4-z to Registration
Statement, Registration No. 33-54196).
4-f *Seventh Supplemental Indenture dated as of
October 1, 1993, to Indenture dated as of December
1, 1986 (Exhibit 4-a to Form 10-Q dated
September 30, 1993).
4-g *Eighth Supplemental Indenture dated as of
December 1, 1993, to Indenture dated as of December
1, 1986 (Exhibit 4 to Registration Statement,
Registration No. 33-51799).
4-h *Ninth Supplemental Indenture dated as of
February 1, 1994, to Indenture dated as of December
1, 1986 (Exhibit 4-h to Form 10-K for year ended
December 31, 1993).
4-i *Tenth Supplemental Indenture dated as of
November 1, 1994, to Indenture dated as of December
1, 1986 (Exhibit 4I to Form 10-K for year ended
December 31, 1994).
4-j *Resolution of Board of Directors Establishing
3.80% Cumulative Preferred Stock (Exhibit 2-R to
Registration Statement, Registration No. 2-40239).
4-k *Resolution of Board of Directors Establishing
4% Cumulative Preferred Stock (Exhibit 2-S to
Registration Statement, Registration No. 2-40239).
4-l *Resolution of Board of Directors Establishing
4.50% Cumulative Preferred Stock (Exhibit 2-T to
Registration Statement, Registration No. 2-40239).
4-m *Resolution of Board of Directors Establishing
4.20% Cumulative Preferred Stock (Exhibit 2-U to
Registration Statement, Registration No. 2-40239).
4-n *Resolution of Board of Directors Establishing
4.35% Cumulative Preferred Stock (Exhibit 2-V to
Registration Statement, Registration No. 2-40239).
4-o *Certificate of Designation of Board of
Directors Establishing the $50,000,000 Cumulative
No Par Preferred Stock, Auction Series A (Exhibit 4-
a to Form 10-Q dated March 31, 1992).
4-p *Indenture for Medium-Term Note Program dated
as of April 1, 1991, between KCPL and The Bank of
New York (Exhibit 4-bb to Registration Statement,
Registration No. 33-42187).
4-q *Indenture for Medium-Term Note Program dated
as of February 15, 1992, between KCPL and The Bank
of New York (Exhibit 4-bb to Registration
Statement, Registration No. 33-45736).
4-r *Indenture for Medium-Term Note Program dated
as of November 15, 1992, between KCPL and The Bank
of New York (Exhibit 4-aa to Registration
Statement, Registration No. 33-54196).
4-s *Indenture for Medium-Term Note Program dated
as of November 17, 1994, between KCPL and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Smith Barney Inc. (Exhibit 4-s to
Form 10-K for year ended December 31, 1994).
10-a *Copy of Wolf Creek Generating Station Ownership
Agreement between Kansas City Power & Light
Company, Kansas Gas and Electric Company and Kansas
Electric Power Cooperative, Inc. (Exhibit 10-d to
Form 10-K for the year ended December 31, 1981).
10-b *Copy of Receivables Purchase Agreement dated as of
September 27, 1989, between KCPL, Commercial
Industrial Trade-Receivables Investment Company and
Citicorp North America, Inc., (Exhibit 10-p to Form
10-K for year ended December 31, 1989).
10-c *Copy of Amendment to Receivables Purchase
Agreement dated as of August 8, 1991, between KCPL,
Commercial Industrial Trade-Receivables Investment
Company and Citicorp North America, Inc. (Exhibit
10-m to Form 10-K for year ended December 31,
1991).
10-d *Long-Term Incentive Plan (Exhibit 28 to
Registration Statement, Registration 33-42187).
10-e *Copy of Executive Incentive Compensation Plan
(Exhibit 10-g to form 10-K for year ended December
31, 1986).
10-f Copy of Indemnification Agreement entered into
by KCPL with each of its officers and directors.
10-g *Copy of Severance Agreement entered into by KCPL
with certain of its executive officers (Exhibit 10
to Form 10-Q dated June 30, 1993).
10-h Copy of Amendment to Severance Agreement dated
January 15, 1996, entered into by KCPL with certain
of its executive officers.
10-i *Copy of Supplemental Executive Retirement and
Deferred Compensation Plan (Exhibit 10-h to Form
10-K for year ended December 31, 1993).
10-j *Copy of $50 million Letter of Credit and
reimbursement agreement dated as of August 19,
1993, with The Toronto-Dominion Bank (Exhibit 10-i
to Form 10-K for year ended December 31, 1993).
10-k *Copy of $56 million Letter of Credit and
Reimbursement Agreement dated as of August 19,
1993, with Societe Generale, Chicago Branch
(Exhibit 10-j to Form 10-K for year ended
December 31, 1993).
10-l *Copy of $50 million Letter of Credit and
Reimbursement Agreement dated as of August 19,
1993, with The Toronto-Dominion Bank (Exhibit 10-k
to Form 10-K for year ended December 31, 1993).
10-m *Copy of $40 million Letter of Credit and
Reimbursement Agreement dated as of August 19,
1993, with Deutsche Bank AG, acting through its New
York and Cayman Islands Branches (Exhibit 10-l to
Form 10-K for year ended December 31, 1993).
10-n *Copy of Railcar Lease dated as of April 15, 1994,
between Shawmut Bank Connecticut, National
Association, and KCPL (Exhibit 10 to Form 10-Q for
period ended June 30, 1994).
10-o *Copy of Amendment No. 2 to Receivables Purchase
Agreement between KCPL and Ciesco L.P. and Citicorp
North America, Inc. (Exhibit 10 to Form 10-Q for
period ended September 30, 1994).
10-p *Copy of Railcar Lease dated as of January 31,
1995, between First Security Bank of Utah, National
Association, and KCPL (Exhibit 10-o to Form 10-K
for year ended December 31, 1994).
10-q *Copy of Lease Agreement dated as of October 18,
1995, between First Security Bank of Utah, N.A.,
and KCPL (Exhibit 10 to Form 10-Q for period ended
September 30, 1995).
12 Computation of Ratios of Earnings to Fixed Charges.
23-a Consent of Counsel.
23-b Consent of Independent Accountants--Coopers & Lybrand L.L.P.
24 Powers of Attorney.
27 Financial Data Schedules (filed electronically).
* Filed with the Securities and Exchange Commission as
exhibits to prior registration statements (except as
otherwise noted) and are incorporated herein by reference
and made a part hereof. The exhibit number and file number
of the documents so filed, and incorporated herein by
reference, are stated in parenthesis in the description of
such exhibit.
Copies of any of the exhibits filed with the Securities
and Exchange Commission in connection with this document may
be obtained from KCPL upon written request.
Reports on Form 8-K
No report on Form 8-K was filed in the last quarter of
1995; however, a report on Form 8-K was filed with the
Securities and Exchange Commission on January 24, 1996, with
attached copy of the Agreement and Plan of Merger dated as
of January 19, 1996, by and among KCPL, UtiliCorp and KCU.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Kansas City, and State
of Missouri on the 1st day of March, 1996.
KANSAS CITY POWER & LIGHT COMPANY
By /s/Drue Jennings
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
Chairman of the Board and )
/s/Drue Jennings President (Principal )
(Drue Jennings) Executive Officer) )
)
Senior Vice President-Finance )
/s/John DeStefano and Treasurer (Principal )
(John DeStefano) Financial Officer) )
)
/s/Neil Roadman Controller (Principal )
(Neil Roadman) Accounting Officer) )
)
David L. Bodde* Director )
)
William H. Clark* Director ) March 1, 1996
)
Robert J. Dineen* Director )
)
Arthur J. Doyle* Director )
)
W. Thomas Grant II* Director )
)
George E. Nettels, Jr.* Director )
)
Linda Hood Talbott* Director )
)
Robert H. West* Director )
*By /s/Drue Jennings
(Drue Jennings)
Attorney-in-Fact