ML20073J786

Kge 1990 Annual Rept. Kansas Electric Power Cooperative, Inc Financial Statements for Yrs Ended 891231 & 901231 Encl

ML20073J786
Person / Time
Site:	Wolf Creek
Issue date:	12/31/1990
From:	KANSAS GAS & ELECTRIC CO.
To:
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ML20073J654	List: ML20073J651 ML20073J665 ML20073J786
References
NUDOCS 9105090130
Download: ML20073J786 (24)

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g &Lyarand g REPORT OF INDEPENDENT ACCOUNTANTS I The Board of Trustees Kansas Electric Power Cooperative, Inc.:

We have audited the accompanying balance sheets of Kansas Electric Power Cooperative. Inc. as of December 31, 1990 and 1989, and the related statements of I operations, patronage capital (deficit) and other equities, and cash flows for the years then ended. These financial statements are the responsibility of the Cooperative'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 I 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 man-I agement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The financial statements for 1989 have been restated as more fully discussed in Note 3.

As more fully described in Note 1 to the financial statements, certain I depreciation and amortization methods have been used in the preparation of the financial statements which do not, in our opinion, conform to generally accepted accounting principles.

In our opinion, except for the effects of the matters referred to in the preceding paragraph, the financial statements referred to above present fair-I ly, in all material respects, the financial position of Kansas Electric Power Cooperative. Inc. as of December 31, 1990 and 1989, operations and its cash flows for the years then ended, and the results of its in conformity with generally accepted accounting principles.

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Kansas City, MJ.souri February 22, 1991, except as to the information presented in Note 13, I for which the date is April 9, 1991 I

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KANSAS ELECTRIC POWER COOPERATIVE, INC.

BALANCE SHEETS December 31, ASSETS 1990 1989 Utility plant:

Electric plant in service $199,949,714 $199,252,S66 Less allowances for depreciation ,

18,275,032 15,864.124 Net utility plant 181,674,682 183,388,442 Construction vark in process 661,726 607,747 Nuclear fuel, less accumulated amortization of

$9,319,052 and $8,121.062 at December 31, 1990 and 1989, respectively 2,551,765 3,104,211 Total utility plant 184,888,173 187,100,400 Restricted assets:

Cash and short-term investments 198,397 186,877 Investments in associated organizations 3,349,487 3,016,998 Bond fund reserve 3,873,138 3,946,363 Decommissioning fund assets 734,278 508,855 Total restricted assets 8,155,300 7,659,093 Current assets:

Cash and cash equivalents 8,091,258 12.953,722 Short-term investments - 1,001,911 National Rural Utilities Cooperative Finance Corp. patronage capital certificate 14,436 13,620 Accounts receivable from members 5,865,253 5,503,652 Materials and supplies inventory 1,870,145 2.179,512 other assets and prepaid expenses 618,892 580,214 Total current assets 16.459,984 22,232,631 Deferred charges:

Deferred charges, less accumulated amortization of $2,987,735 and $1,341,123 at December 31, 1990 and 1989, respectively 28,664,482 28,428,656 Unamortized bond issue costs 1,348,159 1,410,324 Total deferred charges 30,012,641 29,838,980 Total assets $239,516,098 $246,831,104 The accompanying notes are an integral part of these financial statements.

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December 31. .

-l CAPITAb12ATION AND LIABILITIES 1990 1989 Capita 11zations  !

Patronage capital (deficit) and other equities:

Hemberships $ 2,900 $ 2.900 i Patronage capital (deficit) unallocated and other equities (ree statement) (6,788,559) (7.227,251)

Total patronage capital (deficit) l and other equities (6,785,659) (7,224,351)

Long-te rm debt, less current portion 235,809.072 237,818,425 l Total capitalization _ 2 0,023,413 230,594,074 Liabilities:

Current liabilities:

Accounts payable 4,401,499 4,843,405 Note payable to bank 531,228 161.749 Payroll' and payroll related liab!11 ties 45,016 54.620 Accrued property taxes 704,152 1,726,784 Accrued interest payable 897,244- 3,346.821 Current portion of long-term debt 2,665,000 2,855,580 i Other liabilities - 2,160,645 Total current liabilities 9,244,139 15.149,604 i

Other liabilities:

Decommissioning liability 734,278 508,855 other liabilities 514,268 578,571 L

. Total other liabilities 1,'248,546 1,087,426

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Commitments and contingencies Total capitalization and liabilities $239,516,098 $246,831,104 h

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I-KANSAS ELECTRIC POWER COOPERATIVE, INC.

STATEMENTS OF OPERATIONS I Year Ended December 31, 1990 1989 Operating revenue:

Member $66,612.727 $65,348,349 I Nonmember Total operating revenue 737,279 67,350,006 324,154 65,672,503 Operating expenses:

Power purchased 33,720.357 32,291.467 1,544,367 2,105.099 I

Nuclear fuel Nuclear plant operations 2,547,876 2,386,602 Nuclear plant maintenance 1,550,192 1,138,184 Nuclear plant administrative and general 3,728,266 3,532,857 I Administrative and general Amortization of deferred charges Depreciation 2,323,786 539,811 2,695,079 2,087.464 500,125 2,490,760 Total operating expenses 48,649,734 46,532,558 Operating margin 18,700,272 19,139,945 Interest income 1,220,836 1,023,299 Incomo before interest charges 19,921,108 20.153,244 Interest expense on long-term debt 19,482,416 19,841,244 Net margin $ 438,692 $ 322,000 I

I I I The accompanying notes are an integral part of these financial statements.

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FANSAS ELECTRIC POWER COOPERATIVE. INC.

STATEMENTS OF PATRONAGE CAPITAL (DEFICIT) AND OTi!ER EQUITIES l

l For the Years Ended December 31, 1989 and 1990 1

Patronage l Capital (Deficit) Other I

Memberships Unallocated Equities Total l

Balance, December 31, 1988 $2,800 $(10,835,040)* $3.285.789 $(7,546,451)* j i

Capital allocation - 251,531 (251,531) -

1989 net margin (loss) - (701,299) 1,023,299 322,000 Memberships 100 - - 100 Balance. December 31, 1989 2,900 (11,284,808)* 4,057,557 (7,224.351)*

Capital allocation - 322,000 (322,000) -

I- 1990 net margin (loss) - (782,144) 1.220,836 43P,692 Balance, December 31, 1990 $2,900 1R1,744,952) j4,9562 393 $(6,785,659)

Restated for the correction of an error (see Note 3) 3 I

I The accompanying notes are an integral part of these financial statements.

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I KANSAS ELECTRIC POWER COOPERATIVE INC, STATEMENTS OF CASH FLOWS I

Year Ended December 31.

I Cash flows from operations:

1990 1989 Net margin }_ 438,692 } 322,000 I Adjustments to reconcile net margin to net cash provided by (used in) operating activities:

Depreciation 2,695,079 2.490,760 I Amortization of nuclear fuel Amortization of deferred charges Amortization of bond issue costs 1,197,991 1,746,725 62,165 1,513,719 500,125 62,000

-g Loss on sales of assets 171,898 -

g Increase in restricted cash and short-term investments (11,519) (11.240)

Increase in investments in associated organizations (332,489) (154,443)

I (Increase) decrease in bond fund reserve Increase in decommissioning fund assets Increase in decommissioning liability (30,533)

(225,423) 225,423 11,193 (129,885) 129.885 72,030 I (Increase) decrease in deferred charges (1,982,553)

Net change in current assets and liabilities:

Short-term investments 1,001,911 (1,001.911)

National Rural Utilities Cooperative Finance I Corp. patronage capital certificate Accounts receivable from members Materials and supplies inventory (361,601) 309,367 (816) (8.917)

(190,587) 55,118 I Other assets and prepaid expenses Accounts payable Payroll and payroll related liabilities (38,678)

(441,906)

(9,604) 155.475 (528,186) 11,261 Accrued property taxes (1,022,632) 1,053,577 I Accrued interest payable Other liabilities (2,449,577)

(2,160,643) 125,470 220,645 Total adjustments (1,657,414) 4,376,089 Total provided from (used in) operations (1,218,722) 4,698,089 Cash flows from investing activities:

Additions to utility plant (1,035,301) (3,191.951)

Additions to nuclear fuel (645,544) (2,150,074)

I Cash received for sale of municipal bonds Cash paid for purchase of municipal bonds 3,769,800 (3,837,940)

Total used in investing activities (1,748,985) (5,342,025)

I Continued I

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I g KANSAS ELECTRIC POWER COOPERATIVE, INC.

l g STATEMENTS OF CASH FLOWS, Continued I l l

l l Year Ended ,

December 31, l 1990 1989

Cash flows from financing activities:

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Proceeds from issuance of long-tenn debt $ - $ 3,019,000 l

. - Increase in short-tenn borrowings 369,479 156,057 Repayment of long-term debt (2,199,932) (1,209,720)

Increase in memberships -

100 i

!E Increase in other liabilities (64.304) - l lP 1

Payment of other liabilities - (58,401) ;

l Total provided by (used in)  ;

l financing activities (1.894,757) 1,907,036 Increase (decrease) in cash and cash equivalents (4,862,464) 1,263.100 l

l Cash and cash equivalents, beginning of year 12,953,722 11,690,'622

' Cash and cash equivalents, end of year $ 8,091,258 $12.953,722 Supplemental disclosure of noncash investing activities:

3 During 1989, the Cooperative reached agreements with l' Kansas City Power & Light Company and Kansas Gas &

Electric Company whereby $896,538 in reimbursable construction costs previously invoiced to the companies, I and recorded in deferred charges, were reclassified to net utility plant.

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I I The accompanying notes are an integral part of these financial statements.

KANSAS ELECTRIC POWER COOPERATIVE. INC.

NOTES TO FINANCIAL STATEMENTS I

1. Departures From Generally Accepted Accounting Principles:

Effective February 1, 1987, the Kansas Corporation Commission (KCC) issued an I order to Kansas Electric Power Cooperative, Inc. (KEPCo) requiring tha use of present worth (sinking fund) depreciation and amortization. As more fully described in Notes 4 and Sa, such depreciation and amortization practices constitute phase-in plans which do not meet the requirements of FASB Ho, 92,

" Accounting for Phase-in Plans." The effect of these departures on the financial statements as of and for the years ended December 31, 1990 and 1989 is to overstate net utility plant by $17,578,058 and $13,228,132, overstate I deferred charges by $2,415.087 and $1.828,576, understate the deficit in patronage capital (deficit) by $19.993,145 and $15.056,708, and overstate net margin by $4,936,437 and $5,146.374, respectively.

I 2. ryggy of Significant Accounting Policies

a. System of Accounts:

KEPCo maintains its accounting records substantially in accordance with the Federal Energy Regulatory Commission's chart of accounts as adopted I by the Rural Electrification Administration (REA) and in accordance with accounting practices prescribed by the KCC, except as described in Note Sa.

b. Utility Plant and Depreciation Utility plant is stated at cost. The costs of repairs and minor replace-monts are charged to operating expense as appropriate. Costs of renewals and betterments are capitalized. The original cost of utility plant retired and the cost of removal, less salvage, are charged to accumulated depreciation.

Thrcugh January 31, 1987, the provision for depreciation for electric I plant in service was computed on the straight-line method at a 3.44%

annual composite rate. Effective February 1, 1987, in accordance with an order issued by the KCC, the provision for depreciation is computed on a present worth (sinking fund) method which provides for increasing annual I, provisions over the next 25 years. The composite rates for the years ended December 31, 1990 and 1989 were 1.4015% and 1.29512, respectively.

The provision for depreciation, computed on a straight-line basis, of other components of utility plant are as follows:

Transportation equipment 25 to 33%

Office furniture and fixtures 10% 1 Leasehold improvements 20%

Transmission equipment 10%

I Continued 7

I PANSAS ELECTRIC PMIEi; C00kERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS I -

Depreciation expense other than as set forth in the statements of opera.

tions is not significant.

c. Nuclear Fuel:

Nuclear fuel cost is amortized to fuel expense based upon the quantity of heat produced for the generation of electric power. The permanent I disposal of spent fuel is the responsibility of the Department of Energy (DOE). 12PCo pays one mill per net kilowatt-hour of nuclear generation to the DOE for the future d.t spo s al service. These disposal costs are charged to fuel expense.

d. Investments in Associated Organirations:

Investments in associated organizations consist principally of patronage capital certificates, capital term certificates and subordinated term certificates of the National Rural Utilities Cooperative Finance Corp.

(CFC). CFC patronage cr.pital certificates maturing within a year of the balance sheet date are reflected as a current asset.

e. Cash Equivalents:

,I All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents and are stated at cost which approximates market.

f. Short-term Investmonts:

! Short-term investments consist of U.S. Government-backed discount notes and are stated at cost which approximates market.

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g. Materials and Supplies Inventory:

Materials and supplies inventory for the 'ialf Creek Generating Station is stated at cost determined by the average cost method.

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h. Unamortized Bond Issue Costs:

Unamortized bond issue costs related to the issuance of the floating /

fixed rate pollution control revenue bonds and mortgage notes payable to

the National Rural Utilities Cooperative Finance Corporation are being amortized using the interest method over the remaining life of the bonds.

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i. Decommissioning Fund Assets / Decommissioning Liability:

At December 31, 1990 and 1989 $734.278 and $508.855, respectively, has been collected and is being retained in an interest-bearing trust fund.

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Continued l

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FANSAS ELECTRIC POVER COOPERATIVE. INC.

NOTES TO FINANCIAL STATERENTS I

I During 1989, the KCC extended the estitrated useful lif e of the Wolf Creek Generating Station to 40 years from the original estimate of 30 years only for the determination of decommissioning costs. Additionally, the estimated cost of decommissioning Volf Creek was increased to $206 I million in 1988 dollars. KEPCo is responsible for a six percent share of the decotmnissioning costs for the Volf Creek Generating Station. These costs are being recovered and charged to operating expense over the life I of the plant and placed in an external trust to be used only for the phasical decommissioning of Volf Creek.

j . Income Taxes In December, 1987, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 96. ' Accounting for Income Taxes.' which was later I amended by FASB Statements No.100 and No.103, both sntitled 'Accountir.g for Income Taxes--Deferral of the Effective Date of FASB Statement No.

96.' Companies are required to adopt the new method of accounting for I income taxes no later than fiscal year 1992. KEPCo has not adopted early application of the provisions of FASB Statement No. 96 and has not determined the ffects that such adoption will have on its financial statements.

k. Patronsne Capital and Other Equitiest I Operating margin, net of interest expense, is credited or charged to patronage capital. Nonoperating margin (interest income) is credited to other equities; however, upon an affirmative vote of the membership.

margins may be allocated to patronage capital unallocated.

1. Rates:

I The KCC has authority to establish KEPCo's electric rates subject to times interest earned ratio and debt service coverage requirements set forth by the Rural Electrification Administration (REA).

KEPCo believes it is probable that future rates, as established by the KCC will allow the recovery of depreciation .nd amortisation which has been deferred (excess of straight-line over ninking fund). If subsequent I recovery is not permitted, charged to expense at that time.

the unrecovered deferred balances would be

m. Revenues:

Revenues from the sale of electricity are recorded based on billings to customers and on contracts and scheduled power usages, as appropriate.

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Continued I '

I KANSAS ELECTRIC POWER COOPERATIVE, 1.d .

NOT:'3 TO FINANCIAL STATEKENTS I

n. Reclassification:

KEPCo has reclassified the presentation of certain prior year information to conform with the current presentation format.

3. Restatee.mt In 1990, the Cooperative restated the 1984 financial statements for the correction of an error. The error occurred in 1986 when the Cooperative I understated its nuclear fuel expense by $409,035 as a result of errors in the calculation of nuclear fuel amortization.

The ef fect of t his r;, statement on the financial statements presented herein I was to increase the deficit in patronage capital (deficit) unallocated and decrease the nuclear fuel component of utility plant at January 1, 1989 by

$409,035.

4. Volf Creek Generating Stationt KEPCo owns six percent of the Wolf Creek Generating Station near Burlington, Kansas. The remainder is owned by the Kansas City Power & Light Company (KCPL-472) and Kansas Gas & Electric Company (KGE.472). Substantially all I of YEPCo's utility plant represents its Station. }2PCo is entitled to a proportionate share of the capacity and energy from Wolf Creek which is used to supply a portion of KEPCo's members' share of the Wolf Creek Generating requirements. KEPCo is billed for six percent of the operatians, maintenance I and administrative and general costs related to Wolf Creek. All operations are accounted for in the same manner as would be a wholly-owned facility.

The KCC declared Wolf Creek commercially operable on September 3, 1985.

KEPCo's total investment includes interest and administrative costs during construction.

Effective February 1, 1987, the KCC issued an order to KEPCo to utilite a present worth (sinking fund) depreciation method which does not conform with I

generally accepted accounting principles and which constitutes a phase in plan which does not meet the criteria of FASB No. 92. If depreciation on electric plant in service was calculated using a method in accordance with generally accepted accounting principles, depreciation expense would be increased and IIPCo's operating margin would be decreased by $4,349,926 and

$4.534,105 for the years ended December 31, 1990 and 1989, respectively.

In addition, net utility plant would be decreased and the deficit in patron.

(deficit) unallocated would be increased by $17,578,058 and I age capital

$13,228,132 at December 31, 1990 and 1989 respectively.

I Continued 10

I KANSAS ELECTRIC POWER COOPERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS I

5. Deferred Charr.ess

a. Disallowed Costs:

Effective October 1, 1985 the KCC issued a rate order relating to KEPCo's investment in Wolf Creek which disallowed approximately $22.9 million of KEPCo's investment in Wolf Creek. A subsequent rate order, effective I February 1, 1987, allows KEPCo to recover these disallowed costs, as well as interest costs and property taxes related to the disallowed portion for the period from September 3, 1985 through January 31, 1987, over a I 27.736 year period starting February 1, 1987. KEPCo is using present worth (sinking fund) amortization to recover the disallowed costs which enables it to meet the times interest earned ratio and debt service requirements as interpreted by KEPCo in the KCC rate order dated I January 30, 1987. However, the KCC order can be interpreted to require straight-line amortization of these costs. The method used by KEPCo constitutes a phase.in plan which does not meet the criteria of FASB I No. 92 and, accordingly, an additional $586,511 and $612.269 should be charged to expense for 1990 and 1989. respectively. In addition, deferred charges would be decreased and the deficit in patronage capital I

(deficit) unallocated would be increased by $2.415,087 and $1.828,576 at December 31, 1990 and 1989, respectively.

b. titility Plant Costs:

Certain utility plant costs were not included in KEPCo's 1905 rate re-quest because the KCC required KEPCo to file the rate request based on I projected total utility plant costs. The February 1, 1987 rate order in-cluded these costs in REPCo's rate prospectively. However, no provision was made in the rate order for recovery of the related depreciation, property taxes and interest costs for the period from September 3, 1985 through January 31 1987. Accordingly, KEPCo included the related depreciation, property taxes and interest costs for the period from September 3, 1985 through January 31, 1987 in deferred charges in the accompanying balance sheets.

The KCC issued a rate order dated February 11, 1988 which provided KEPCo with the option to recover these costs I

from savings achieved from the refinancing of a certain portion of KEPCo's long-term debt in 1988 or to include them in a future rate request. The Board of Trustees of KEPCo elected to recover the costs from future savings and, accordingly, began I amortizing these costs on January 1, 1988 over 26.82 years. Annual amortization will increase over the recovery pe tod.

I I Continued 11

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)*ANSAS ELECTRIC POWER COOPERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS I c. Revenue and Expensen September 30 1985:

for the Period from September 3. 1985 Througl3 l l

I Although the Wolf Creek Generating Station began commercial operations on September 3, 1985, the KCC ordered 12PCo to accumulate all revenues and expenses related to the operation of Wolf Creek for the period from l

September 3, 1985 through September 30, 1985 in deferred charges. The I KCC issued an order on February 1, these costs over a ten-year period.

increamus over the recovery period.

1987 which allowed KEPCo to recover Annual amortization of such costs I 6. Deferred Refund During 1988, }IPCc3 received a refund of purchased power costs attributable to retroactive rate and fuel adjustments. The KCC ordered KEPCo to retain

$3,880,000 of the retend and to include it in operationo equally in 1980 and 1989.

7. bonn-term Delg l Long-torm debt consists of mortgage notes payable to the United States of America acting through the Federal Financing Bank (FFB), the National Rural Utilities Cooperative Finance Corporation (CFC) and others. Substantially all of KEPCo's assets are piedr,ed as collateral. The terms of the notes are as follows:

December 31, Mortgage notes payable to the Federal Financing Bank (FFB) at rates varying from 7.3162 to I 9.3662, payable in quarterly installments through 2018.

Mortgage notes payable to the National Rural

$133,934,072 $135.509.005 Utilities Cooperative Finance Corporation

'I at a rate of 10.02812 through December.

1997 and 9.83Z thereafter, payable semi.

annually, principal payments commencing in I 2003 and continuing annually through 2017.

Hortgage notes payable to the National Rural Utilities Cooperative Finance Corporation 51,340,000 51.340,000 j at a rate of 9.52742 through December, 1997

, and 9.332 thereafter, payable semi-l annually, principal payments commencing in l 1989 and continuing annually through 2002. 10,700,000 10,925,000 Continued 12

I KANSAS ELECTRIC F0VER C00FERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS I

p,ecember 31, 1990 1989 Floating / fixed rate pollution control revenue bonds, City of Purlington, Kansas Pooled Series 1985C, variable interest rate, payable annually through 2015. $ 42,500,000 $ 42,900,000 238,474,072 240,674,005 Less current portion 2.665,000 2,855,580 1235,809.072 }.237,818,425 Aggregate maturities of mortgage notes payable to the Federal Financing Bank and National Rural Utilities Cooperative Finance Corporation and floating /

fixed rate pollution control bonds as of December 31, 1990 are as follows:

Y al 2 6 mount 1991 $ 2,665,000 1992 2,873,000 1993 3,269,000 1994 3,434,000 1995 3,770,000 Thereafter to '018 222,463,072 J238.474 n072 At December 31, 1990, KEPCo has approved FFB loans guaranteed by REA with I balances of $133,934,072. Of this amount, $8,425 249 currently has maturity dates ranging from December 31, 1991 to March 31, 1992. Upon maturity of each short-tenn advance, }IPCo may refinance the amount with another two-year I advance or elect to refinance with a long-term maturity date of December 31, 2015.

During 1990 and 1989, I

interest incurred totalled approximately $19,482.416 and $19,897,000, respectively, of which $19,482,416 and $19,841,244, respec-tively, was charged to interest expense and the remaining amount was charged to various deferred charges.

Restricted cash and short-term investments consist of unexpended loan proceeds remaining in the Construction Fund. These funds will be utilized for scheduleu principal reduction of the originating debt.

I Continued 13

I KANSAS ELECTRIC POWER COOPERATIVE. INC.

NOTES TO FINANCIAL STATEMENTS I

I YlPCo has entered into a bcnd covenant whereby the Cooperative is required to maintain, with a trustee, a Bond Fund Reserve of a stipulated amount of approximately $3.9 million, sufficient to satisfy certain future interest and I principal obligations.

B. Short-term Borrowings:

KE?Co has available a $12 million line of credit with the CFC. Approximately

$11.5 million remained unused at December 31, 1990.

9. Operating Lease YIPCo leases of fice space under a noncancellable operating lease expiring on December 31, 1994. The related rental expense for 1990 and 1989 was $89.715 and $80,317, respectively.

Future minimum lease payments for office space and equipment leased at December 31, 1990 are as follows:

Year Amount 1991 $100,258 I 1992 1993 1994 100,258 94,538 88.497

$383.551 The minimum lease payments can be increased to the extent that taxes and insurance paid by the lessor exceed 1990 levels.

10. Pension Plant

a. National Rural Electric Cooperative Association (NRECA) Retirement and Security Program KEPCo participates in the National Rural Electric Cooperative Association (NRECA) retirement and security program for its employees. All employees I of members of NRECA are eligible to participate in the program. KEPCo makes annual contributions to the plan equal to the amounts accrued for pension costs. A moratorium on contributions is in effect for the period July 1, 1987 through December 31, 1990 due to reaching the full funding I

Continued 14

I i YANSAS ELECTRIC POWER COOPERATIVE. INC.

NOTES TO FINANCIAL STATEiENTS I -

I limitation. In the master multiemployer plan which is available to all members of NRECA, the accumulated benefits and plan assets are not determined or allocated by individual employee. KEPCo has no pension expense for the plan for the years ended December 31, 1990 and 1989.

b. Wolf Creek Huclent Operatinr. Corporation Retirement Plan KEPCo has an obligatio'. to the Wolf Creek Nuclear Operating Corporation Retirement Plan for its six percent ownership interest in the Wolf Creek Generating Station. This plan provides for benefits upon retirement, I normally at age 65.

funding requirements.

In accordance with the Employee Retirement Income Security Act of 1974 (ERISA), KEPCo has satisfied at least its minimum Benefits under this plan reflect the employee's compensation, years of service and age at retirement.

Provisions for pensions are determined under the rules prescribed by Financial Accounting Standards Board (FASB) Statement No. 87. The following is KEPCo's portion ot the funded status of the plan December 31, 1990 1989 Accumulated benefit obligation:

I Vested Nonvested

$160,500 77,880

$110.574 93.607 Total $238.380 $204,181 Determination of plan assets less obligations:

Fair value of plan assets (a) $ 428,820 $ 314,140 I Projected benefit obligation (b)

Difference (662,040) (527.856) ji233,220) $(213.708)

Reconciliation of difference:

Contributions to trusts:

Accrued liability $(105,120) $ (67,512)

Unamortized transition amount (152,400) (159,666)

Unrecognized net gain 59,160 50,093 Unrecognized prior service cost (34,860) (36.623)

Difference $(233,220) $(213t 73 )

I (a) Plan assets are invested in insurance concracts, corporate bonds, equity securities, U.S. Government securities and short-term in-vestments.

I Continued 15

I l KANSAS ELECTRIC POWER COOPERATIVE, INC.

NOTES 70 FINANCIAL $TATDiENTS I

(b) Based on discount rate and rate of increase in future salary levels of 82 and 62, respectively, Long-term rate of return on plan assets of 8! was used.

Components of provisions for pensions:

1990 1989 Service cost $127,680 $112.524  !

I Interest cost on projected benefit obligation Actual return on plan assets Other 42,240 (4,920)

(17,100) 29,389 (37,181) 23,570  ;

Total pension expense $147,900 jl28,302

11. Income Taxen:

At December 31, 1990, KEPCo had unused net operating loss carryforwards l available to reduce future taxable income and investment tax credit carry-forwards as follows:

Net Operating Het Operating l Loss Loss Investment Carryforwards Available Carryforwards Tax Credit Through (Book Basis) (Tax Basis) .

Carryforwards lI l

1996 1997

$ 7,067,000 12,410,000 203 l

1998 17,124,000 896 I

- 1 1999 632,966 21,468,000 1,210 2000 1,977,542 4,443,000 7,732,780 2001 2.885.169 3,827,000 -

i l

I 2002 2003 2004 1,292.882 4.155,000 1,790,000

! 2005 - 1,950,000 -

$6,788,559 $74,234,000 $7,735,089 The difference between the net margin shown in the accompanying financial statements and the net operating losses for tax return purposes for 1990 and 1989 is due primarily to operating expenses deferred for financial statement I purposes and expensed for tax return purposes and timing differences related to depreciation expense.

E Continued l

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KA!1SAS ELECTRIC POWER COOPERATIVE, Ilic .

110TES TO FI!4A!1CIAL STATEME!4TS I

I Income tn provisions based upon the margins shown in the accompanying financial statements of approximately $180,000 and $130,000 for 1990 and 1989, respectively, have been offset by the realization of the tax benefit I of operating loss carryforwards. These tax provisions and the offsetting benefit have not been presented in the statement of operations.

12. Contingencies

a. Litietion:

There is a provision in the Wolf Creek operating agreement whereby the owners treat certain claims and losses arising out of the operation of the Wolf Creek Generating Station as a cost to be born by the owners I separately (but not jointly) in proportion to their ownership shares.

Each of the owners has agreed to indemnify the others in such cases.

I KGE is one of the defendants in a nine count civil RICO Act Suit seeking

$23 million in damages related to the plaintiff's termination and the Q-1 program at Volf Creek. KEPCo has reserved its rights under the I Agreement until the outcome reveals no criminal wrongdoing on the part of KGE employees. The discovery stage has been suspended and the probable, potential liability, if any, cannot be determined at this time.

I As in the case with othar electric utilities, the Cooperative, from time to time, is subject to various actions which occasionally include punitive damage claims. The Cocperative maintains insurance providing I liability coverage: however, the insurance companies generally reserve the right to challenge insurance coverage for punitive damage recoveries.

In the opinion of the general counsel of the Cooperative, there is not a significant probability that, as a result of pending or threatened I personal injury actions, the Cooperative will be liable for payment of actual or punitive damages in an amount material to the financial posi-tion of the Cooperative,

b. 11uclear Liability and Innurance The Price-Anderson Act currently limits the public liability, including I' attorney costs, of nuclear reactor ovuers for claims that could arise from a nuclear incident to $7.807 billion. Accordingly, FIPCo and other owners of Volf Creek have liability insurance coverage of this amount I which consists of the maximum available private insurance of $200 million and Secondary Financial Protection (SFP). The SFP coverage is funded by a mandatory program of deferred premiums assessed against all owners of licensed reactors for any nuclear incident anywhere in the country. The Continued 17

I KANSAS ELECTRIC POWER COOPERATIVE, INC.

NOTES TO FINANCIAL STATDiENTS I

I maximum assessment per reactor is $63 million share), plus 52 for attorney costs. The owners of Wolf Creek are jointly and severally liable for these charges, payable at a rate not to exceed

($3.8 million - KEPCo's

$10 million ($600,000 - 12PCo's share) per incident per year.

The owners of Wolf Creek also have property damage, decontamination and decommissioning insurance for loss resulting from damage to the Volf Creek facilities in the amount of $2.185 billion. Nuclear insurance pools provide $1.060 billion of coverage. Nuclear Electric Insurance Limited (NEIL) provides $1.125 billion. In the event of an accident, insurance proceeds must first be used for reactor stabilization and site decontamination. The remaining proceeds from the $2.185 billion insurance coverage ($131 million 12PCo's share), if any, can be used for property damage up to $122 million KEPCo's share) and premature decommissioning costs up to $9 million (12PCo's share) in excess of funds previously collected for decommissioning.

I The owners of Wolf Creek have also procured extra expense insurance from NEIL. Under both the NEIL property and extra expense policies the Company is subject to retroactive assessment if NEIL losses, with respect to each policy year, exceed the accumulated funds available to the insurer under that policy. The estimated maximum retroactive assessments for 12PCo's share under the policies total approximately $879,998 per year.

In the event of a catastrophic loss at Wolf Creek, the amount of insurance available may not be adequate for property damages and extra expenses incurred. Uninsured losses, to the extent not recovered through I rates, would be assumed by the KEPCo and could have a material adverse effect on the KEPCo's financial condition,

c. Nuclear Fuel Commitments:

At December 31, 1990, Wolf Creek's nuclear fuel commitments (KEPCo's share) were approximately $3.4 million for uranium concentrates through 1997, $22.6 million for enrichment through 2014 and $7 million for fabri-cation through 2014.

I I Continued 18

I KANSAS ELECTRIC POWER COOFERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS I

d. REA Development:

On February 12, 1991,11PCo received notification from the REA that the I

REA was not approving }2PCo's audited financial statements for the years ended December 31, 1988 and 1989 and would not accept 11PCo's audited financial statements for the yeat ended December 31, 1990 because such financial statements are not in conformance with generally accepted I accounting principles as discussed in Note 1. In the opinion of manage.

ment, such non-approval of n2PCo's financial statements will have no significant impact on }2PCo's financial condition and will not impair its ability to refinance existing debt.

13. Subsequent Event:

On April 9, 1991, the KCC ordered }2PCo to defer its 61 share of the incremental maintenance and replacement power costs associated with refueling I of the Volf Creek Generating Station retroactive to the date of the 1990 refueling outage. The effects of this order are reflected in the financial statements. Such deferred costs are being amortized over tb operating cycle at a rate of approximately $120,000 per month coincident vitt, the recognition of the related revenues. The total costs deferred in connection with the 1990 refueling outage were $1.9F2,553, of which $1,200,653 were amortized during 1990, leaving an unamortized balance of deferred incremental maintenance and replacement power costs of $781,900 at December 31, 1990.

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