ML20148S412
| ML20148S412 | |
| Person / Time | |
|---|---|
| Site: | Wolf Creek  |
| Issue date: | 12/31/1987 |
| From: | Cadman W WOLF CREEK NUCLEAR OPERATING CORP. |
| To: | |
| Shared Package | |
| ML20148S408 | List: |
| References | |
| NUDOCS 8804180432 | |
| Download: ML20148S412 (45) | |
Text
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---s Kansas Gas and Electric Company
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Letter to Our Stockholders KG&E is at a turning point...
years will determine 10 years from now if we can still tell a good story.
q or two years my letter to you has Our busiress is selling energy. Our progress focused on the steps we have taken to in the last two years, howes er, has been primarily reheve the immediate fmancial stress created by the the product of cost cutting, creative financing, and 198 Wolf Creek rate order. In 1987, approval of a deferred revenues. These have been effective short new rate stabilization plan effectively ended term fixes; but, in the long run, they are not a htigatmn of the rate order. Anc; the $392 million substitute for selling energy, sale and leaseback of our La Cygne 2 generatinS Our key objective in the next few veurs is to unit completed a strategy intended to regain a more fully utili7e existing generating facil'ities. The mmunum level of fmancial strength without fact is we can produce more electrical energy than serkmg further rate increases.
i3 currently being generated and sold. For example, The good news is we have achieved that the annual system capacity factor for our base load goat I or the second consecutive year, dividends units - the electricity these facilities actually were increased, our bond ratings improved, and our (cononued on neu py) earnings from operations increased.
A major remainin;; question for the near term is whether we will be required to write down
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retamed earnings by more than $96 miiiton and to pecy.,
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chmmate further accrual of defarred revenues. Both i(
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couhi be required by the new Statement of i T*" y-Fmancial Accounting Standards No. 92. This new t
s standard con 0icts with accounting practices f"
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appros ca by our regulators. We are working with N;
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beturities and b\\ change Commission to favorably
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+.4 Na resoh e this question
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j M9 The results produced to date give us
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$ i breathing room a sol"e fundamental problems ar.d
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f m~ eiy mm ty,eegthen eur fmanoai po tion lonc ter m h hat we do in the next few C,
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produce as a percentage of w hat they wou!d produce if operated at full capacity 100% of the time - over the last fwe years has been 49%,58%,
51%,52% and 57%. Of course, it is not r,ssible to achieve 100%. For our facilities about 65% to 70%
7 7Y is achievable.
e, That we are making progress is obvious.
o Retail sales in 1987 increased 4% over 1986, while wholesale sales increased 8%, bringing the total sales increase to 5%. Sy. tem base load capacity L ctor in 1987 was 37% compared to 52% in 1986.
We have some of the pieces in place to maintain this progrest Through innovative rate contract we have become partners with major customers in long range demand / capacity planning. But these 4
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contracts alone only maintain existing sales levels.
e We must go further, as we have with one major customer which purchased 76,625,000 add;tional y
.r kilowatthours in 1987 under a short term incremental sales contract.
We have increased our, hare of the p.
g residential space heating market and expect to continue doing so.
in a small hrm that sells a device which permits We very actively support economic customers to carefully control their use of electric;ty development in our service territory. In part with and to pay in advance for service, the help of our economic development rate, duiing finally, we remain committed to holding 1987 we connected 39,261 kilowatts of new load at the line on rate increases and to restoring our 143 new or expanded industries accounting for common dividend to its pre-Wolf Creek rate order 3,317 new job.. As with other efforts to more fully level of $2.36 per year. Progress to date has been use generating facilities, this one i. also a good good. We have kept rates within the levels start. But it is only a start.
established in our KCC approved rate stabilization T here should be no mistake al out it. Our plan. Dividends were increased 15% to $1.36 in key objective is to more fully utili/e our generating 1986 and a further 9% to $1.48 in 1987. Both facilities. But, we have no intention of achieving commitments depend upon our ability to achieve that objective in a way which would require new full utilization of our generating facilities.
base load units. Through encouragement of off We appreciate your support and welcome peak use, load management, conservation, and, as your questions and comments.
necessey, cogeneration, we intend to avoid major construction projects at least for the rest of this century.
What about saie of products other than electrical energy? % e wih omider diversihcation Wilson K. Cadman opportunities on a case-by cee kasis. A hrst gep Grabm.m ef fire /Rar.f arr.f Prc4rderrt has been taken with our purchase 'f a 50% inteest February 26,1988 2
Financial Highlights, Five-Year Comparison l
(D0llars in Thousands tuert per shut data) i 1987 1986 1985 1 P.,, _
1943 Operating Revenues 5 512,126 5 496,340 $
410,"'86 $ 41 L.,752 5 393,053 Net income 97,437 $
14,856 $
97,732 $
121,858 $ 107,538 Earnirigs Applicable to Common stock 5
94,961 $
5,669 5 83,377 $
106.445 1 92,027 Averagt Shares of Common Stock Outstanding 40,522,801 40,752,852 39,118,105 3'.9 8.342 29,912.327 Common Stock Per Share Data Earnings 5
2.34 5 0.14 $
2.13 $
3.07 $
3.08 Cash Dividends 1.39 $
1.225 $
2.065 $
2.36 C 2.27 Indicated Year-End Dividend Rate 1.43 $
1.36 $
1.18 $
~: 3 6 $
2.36 Ntarket Value Year-End 5
19.25 $
22.875 $
14.125 $
17.25 5 1,'.25 Book Value (htoody's Net Tangible Assets)
Year End 19.86 $
18 87 $
2 ? '2 2,l38 $
20.31 Available Capacity (Ntegawatts) 2,399 2,435 2,097
',099 2,160 4
System Peak Responsibility (Ntegawatts) 1,653 1,627 1,6. 2 1,633 1,'/00 Reserve Capacity (Niegawatts) 746 SC8 4M
- 66 460 Average Use Per Residential Customer (Kilowatthours) 9,314 9,202 9.435 9.312 9,901 Average Price Per Residential Xilowatthour a 02(
8.93 c 7.13.
6.9S e 6.77c Nu:,1ber of Customers at End of Year 249 970 247,726 246,017
?42,666 238,591 Long Term Debt
$ 1,016f'+ $ 1,063,464 $ 1,047.420
- 991,004 $ 753,242 Redemption Required Preferred Stock 5
18,000 6 76,000 $
78,';00 $
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Total Utility Plant (Net)
$ 1,926,536 ! 2,028,592 $ 2.217,478 $ 2,064,721 $ 1,657,203 Total Assets 5 2,611,787 $ 2,282,860 $ 2.444,789 $ 2,226,266 5 1,78,232 l-l ',
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More the'n JS,000 persons visited 'ihe Moving Wall July 3 10 in Wichita. The half-scale replica of the \\'ictnant \\'eterans Mernarialin Washington I
tras sponsored in Kansas by k'G&E and the Children's Museum of Wichita. The memorial tras 3
open 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> daily on the campus of Yhe M
Wichita State liniversity. More than 300 pe i
volunteers assisted, including 56 liG&E employees.
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Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations in 1986, retail sales were lower than in 1985.
Residential sales were down due to milder sales and Customers temperatures. Industrial sales declined due to reduced hmand for chemical and cement products, T otal electric sales for 1987 were 5%
and discontinuance of construction energy sales to higher than in 1986. Retail sales Wolf Creek Generating Station (Wolf Creek).
registered a 4% increase over 1986, while wholesale Wholesale sales for 1986 were 18% higher than in sales increased 8%. Wholesale sales were 16% of 1985 due to the availability of Wolf Creek, total dectric sales.
Industrial sales registered the largest gain in sales the retail sales category with a 7% increase. The
,,j 7,,m industrial gain is due primarily to a major chemical a con ~+ m simawas manufacturer increasing producuon. Residential and commercial sales increased in 1987 due primarily to an increased number of customers.
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Details of sales and customer statistics are presented in Table 1 and the Sales graph.
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Q%L The increase in wholesale sales is due to the Company's success in selling uncommitted energy i.
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g from its available capacity. Wholesale sales are
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2-expected to remain volatile due to the availability of g yggyg generating capacity in the region and the
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competitive pricing it creates.
lable1 Sales and Customer Statistics Operating Revenues 1987 1986 Total operating revenues for 1987 were $512 million. Operating revenues for 1987 and 1986 Electric Sales (M kWh) e han han increased 3% and 21%, respectively. These Residential 2,076,150 2.1 % 2,034,158 (1.4)%
Commercial 1.681,847 1.4 1,658,665 )8 increases reflect rate it' creases as well as decreases Industrial 2,862,695 7.2 2,671,181 (0.9) due to lower fuel and purchased power costs which Publ e Street & Highway flow through the fuel adjustment clause. The components of the changes in revenues are Retail Sales 6,673,714 4.0 6,418,796 (0.4)
Wholesale Sales 1,253,644 8.3 1,157,888 17.7 Provided in Table 2 and the Electric Operating Total Sales 7,927,358 4.6 % 7,576,684 2.0%
Revenues graph.
Percent Perceri Table 2 Customers (End of Year) Customers Chance Customen Change Operating Revenues Residential 224,162 0.8% 222,283 0.8%
Revenue increase or Commercisl 20,619 1.6 20,286 0.4 (Decrease) From Prior Year Industrial 4,365 0.2 4,356 (4.1)
(Thousands of Dollars)
Public Street & Highway 1987 1986 Lighting 785 3.0 762 6.6 RM Retail Customers 249,931 0.9 247,687 0.7 Rate increases
$ 15,675
$ 109,073 Wholesale Customers 39 -
39 2.6 Fuel (11,177)
(25,052)
Total Customers 249,970 0.9 % 247,726 0.7%
Electric Sales 8,540 (819)
Other 334 106 Total Retail 13,372 83,308 Wholesale 1,627 855 Other Operating Revenues 787 1,391 Total Revenue
$15,786
$ 85,554 4
Electric Operating Revenues Resources. The remainder of the other operation and maintenance expense increase is due primarily
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to inflation
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Street Lighti g ana Other g
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million,15% below the 1986 level. The decrease is g
primarily due to increas!ng Wolf Creek's
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depreciable life fron 30 to 40 years and removing
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w sale.
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effect on 1986 operating expenses, phase-in M
revenues and Allowance for Funds Used During T T ","."'
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",." 7 Construction (AFC). With commercial operation of Wolf Creek, the majority of costs previously capitalized is now expensed.
The Company's income tax expense for Operatm, g Expenses operations increased by approximately $1.6 million Total fuel and purchased power expense in in 1987. This increase results principally from the 1987 decreased 6% from 1986. Fuel and purchased power expense is the combination of fossil fuel Average Fuel Cost Data expense, nuclear fuel expense and purchased power
~em expense. An increase in f< nil fuel expense of 5%
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over 1986 was offset b:.
eases in nuclear fuel and purchased power e3 ses of 26% and 60%
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respectively.
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i The fall 1987 refueling and maintenance m
outage at Wolf Creek extended longer than a m
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similar outage in the fall of 1986. The longer outage i.
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'y resulted in a 7% decrease in nuclear fuel generation
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2 and contributed to a 15% increase in fossil f
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generation compared to 1986. Increased availability 1
of the Company's generating facilities decreased R-L
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purchased power expense.
Fossil fuel and purchased power expense in 1986 decreased from 1985 by 245,nd 77%
S uqc_es g ergy respectively, reflecting the increased availability
- n,uh. a aci and use of nuclear fueled generation from Wolf a ca ad oa e N aar 4
Creek. Information on the cost of fuel and energy sources is provided in the Average Fuel Cost Data
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a p*d] g Other operation and maintenance expenses ry mr in 1987 combined for an 11% increase over 1986.
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cm The lease expense from the sale and leaseback of a-the Company's interest in the La Cygne 2 coal-fired generating unit (La Cygne 2) accounted for 53% of the increase. The sale and leaseback of La Cygne 2 e
is discussed under Capital Requirements and 2
Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) increase of approximately $15 million in operating average common equity was 12.3% compared to income net of the effect of the reduction in federal 0.7% in 1986 and 10.7% in 1985. The 1986 equity income tax rates from 46% to 40% See Other return excluding the effect of adopting SFAS 90, Matters - Accounting Standards Changes and Note would have been 7.6%
1 of the Notes to Financial Statements for the In the fourth quarter of 1987, the effects of adopting Statement of Financial Company's Board of Directors declared a common Accounting Standards No. 96 (SFAS 96),
stock dividend of $0.37 per share. This was a 50.03 Accounting for Incorne Taxes, and the 1987,1986 and per share or a 8.8% increase over the dividend paid 1985 financial statements.
in each of the previous four quarters. Dividends paid on common stock were $1.39 per share in Other Income and Other 1987, an increase of $0.165 per share over 1986.
Non-Operating Items The Annual Common Stock Earnings Per Phase-in revenues in 1987 increased $20.4 Share and Cash Dividends Paid graph details for million over 1986 phase-in revenues net of related the six years between 1982 and 1987 the earnings deferred taxes. The rate stabilization plan, per average share of common stock and the approved by the Kansas Corporation Commission common stock dividends paid. Details of the price (XCC)in March 1987, authorized the Company to and book value of the Company's common stock record phase-in revenues on a gross basis, and to are presented in the Market Price and Book Value cease accruing deferred tax expense on phase-in of Common Stock graph.
revenues. Deferred taxes were provided on most phase-in revenues accrued during 1986 and 1985.
Annual Common Stock The deferred carrying charge allowed on certain Earnings Per Share and Wolf Creek capacity also increased as a result of the Cash Dividends Paid revised rate base valuation of Wolf Creek to $2,376 m '"a'au N d'ad' per kW from $1,290 per kW. Phase-in revenues are im discussed further in Note 2 of the Notes to 7
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Financial Statements.
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m Net income in 1987 of $97 million increased 4
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by $83 million over 1986. The increase is due to the f ".
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effects on 1986 net income of the accounting N
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revenues and adopting Statement of Financial s
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Accounting Standards No. 90 (SFAS 90), Regulated a
Enterprises - Accounting for Abandonments and Disallowances of Plant Costs. See the Statement of Income for 1986 and related Notes to Financial Market Price and Ikx)k Value of Common Stock Statements for further discussion.
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Earnings and Dividends m
Earnings applicable to common stock were n
$95 million in 1987 compared to $6 million in 1986.
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ram stock reflects the increase in net income, as well as
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a $6.7 million decrease in preferred dividends from m
1986. The decrease in preferred dividends reflects
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the retirement of preferred stock by the Company in 1986 and 1987. Earnings for 1985 were $83 rn im
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..e million. In 1987, the Company's earned return on 6
Capital Requirements and million of income taxes and expenses associated l
Resources with the transaction. In addition, a portion of the proceeds have been used by the Company to buy l
Sale and Leaseback 2.1 million shares or $39.3 million of its common j
stock. The Company's Board of Directors have T he Company completed a sale and approved the purchase of up to 6 million shares.
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.L leaseback of La Cygne 2 in September The remainder of the proceeds is currently held in 1987 for $392 million. The taxable gain from the short-term investments.
transaction of approximately $350 million was While no specific use of the remainder of reduced by $107 million of net operating loss the proceeds has been determined, the Company is carryforwards, and also resulted in the utilization of studying alternatives to maximize the return on the approximately $57 million of investment tax credit remaining proceeds, including: 1) the call and carryfonvards.
retirement of, and sinking fund payments on, up to The Company has determined the lease is
$125 million of bonds in 1988 through 1990,2) the an operating lease for financial reporting purposes.
reduction of floating rate debt, and 3) business The Company willlease the plant for a term of 29 diversification and investments, particularly those years with options to renew the term of the lease or which promote economic development in the purchase the facility. Annuallease expense of $30 Company's service territory.
million, net of the amortization of the gain, As part of the Company's application to the commenced October 1987, and will increase to $37 KCC, the Company agreed to credit to cost of million after the ninth year for the remainder of the service the annual amortization of the net gain lease. The expense recognition is generally based from the sale and all benefits from the use of the on the Company's expected pattern of usage of the procer Js from the sale. Correspondingly, the KCC plant during the lease term. The sale and leaseback included lease expense in cost of service. The KCC, is discussed further in Note 6 of the Notes to in appro,ing the transaction, directed its staff to Financial Sta;ements. Throughout the term of the review the Company's cost of service and revenues.
lease, the Company is responsible for 50% of the The staff began its review in January and is costs and expenses associated with the operation of expected to comp;ete the review in 1988. The 1
the leased facility as well as being entitled to 50%
Company believes its cost of service and revenues of the electricity produced by the unit.
are reasonable, but is unable to predict the outcome The purchase was financed in part by the of the KCC's review.
issuance of $341.1 million of secured facility bonds, with the remainder provided directly by the Capital Requirements purchaser. The bonds, which are not a direct Construction expenditures in 1987 remained obligation of or guaranteed by the Company, are substantially below levels experienced over the last secured by a mortgage on the plant and a security decade. The decrease is the result of the Company interest in the Company's obligation to make the completing its construction program to reduce lease payments throughout the term of the lease.
dependence on natural gas as its principal fuel The sale and leaseback proceeds will be source. As shown in Table 3, cons &uction used by the Company to pay approximately $50 expenditures are projected to remain consistent Table 3 1985-1990 Capital Requirernents (Thousands of Dollars)
Actual Projected 1985 1986 1987 1988 1989 1990 Net Construction Expenditures
$115,292 $ 42,046 $ 54,104 $62,579 $ 63,458 $62,019 Add: Securities Redernptions 55,000 234,000 81,300 8,300 108,300 8,300 Total Capital Requirernents
$170,292 $276,046 $135,404 H0879 L17_l,7_58 570,319 1
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1 Management's Discussion and Analysis of j
Results of Operations and Financial Condition (continued) with 1986-1987 levels. The Company anticipates O In August, terminated a $25 million bankers internally generated funds or lease proceeds will acceptance agreement, meet all capital requirements through 1990.
O in September, completed the sale and leaseback Securities redemptions consisted of $38 of La Cygne 2 for $392.1 million.
million of high cost debt and preferred stock and O In October, the Company's Board of Directors
$43.3 million in maturing securities. Capital approved the buyback of up to 6 million shares requirements for 1987 were funded 100% with of the 40.8 million shares cf common stock then internally generated funds. Details of the outstanding. At year end,2.1 million shares had Company's capitalization for 1982-1987 are detailed been purchased.
in the Capital Structure graph.
O In October, redeemed all of the $15 million outstanding balance of the $13.25 preferred Cagt,Stmegre stock series.
The following capital resources are available to
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um g the Company should additional funds be required.
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O The Company's first mortgage bond indenture s
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additional bonds. Under the earnings test, which is the most limiting, on December 31,1987, the "3
Company would have been able to issue $572
.y million of bonds, assuming an interest rate of y
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10% The Company's Reatated Articles of u
Incorporation contain no financial tests limiting o
the issuance of additional shares of preferred 4
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O Short-term lines of credit are available totaling 5
$75 million, of which there was no outstanding balance at year end.
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O The Company has two long-term revolving Rating Changes credit loan agreements. The first agreement for
$100 million is reduced to a maximum of $50 in August 1987, Moody's investors Service million in Decembery992 with the balance, if raised its rating on the Company's first mortgage any, due in December 1993. The second bonds from Baa2 to Baal. This followed Duff and agreement for $150 million will expire June 1994 Phelps having raised the Company's rating from 9 w th the maximum borrowing limit reduced by to 8 in July. These upgrades acknowledge the
$37.5 million annually beginning June 30,1991 Company s improved financial condition and until expiration in 1994. Outstanding balances prospects for contm, ued improveraent. Both firms on December 31,1987 were zero and $150 cited the approval of the rate stabilization plan by million, respectively.
the KCC and the favorable impact of the sale and leaseback of La Cygne 2 as key elements in the Rate Developments improvement of the Company's credit quality.
In December 1985, the c.ompany appealed Financing Activities and Liquidity the Wolf Creek rate order to the Kansas Supreme Court. In June 1986, the court held that the KCC S.igmficant financing activities by the had acted within its legal authority.
Company throughout 1987 included:
In November 1986, the Company asked the O In April, redeemed all of the $8 milh.on United States Supreme Court to review the Kansas outstanding balance of the $8.25 preferred stock Supreme Court opinion. The U.S. Supreme Court series.
8
dismissed the Company's appeal as "moot" with its customers who have an economic incentive because of the KCC's h1 arch 11,1987 approval of to cogenerate.
the rate stabilization plan (plan).
The Tax Reform Act of1986 The plan substantially modified the 1985 Wolf Creek rate order. The key components of the The Tax Reform Act of 1986 reduces the plan are as follows: 1) delayed the third rate corporate tax rate from 46% to 40% in 1987 and to l
increase of $14.6 million from 1987 to 1989; 2) 34% in 1988. This is expected to reduce the I
delayed the fourth rate increase of $15.6 million Company's effective tax rate on its income l
from 1988 to 1992; 3) made permanent the four statement, causing reported earnings to increase.
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increases allowed in the original order; 4) extended However, the act imposes a new alternative the depreciable life of Wolf Creek from 30 to 40 minimum tax, which reduces the Company's ability t
years; 5) included as utility operating revenue an to defer the payment of income taxes with tax approximate $800 million stream of income benefits. Consequently actual taxes paid during the generated over the next 40 years by corporate-remainder of the 1980's and most of the 1990's will owned life insurance policies on certain directors, likely be higher than under the prior tax laws, thus officers and management employees; and 6) revised reducing the Company's cash flow.
tha rate base valuation of the investment in Wolf Creek to $2,376 per kW. Note 2 of the Notes b Other Matters Financial Statements provides a more detailed explanation of the rate recognition of Wolf Creek.
Accounting Standards Changes in the Wolf Creek rate order, the KCC reserved for further investigation the he Company has adopted SFAS 90 by reasonableness of the Company's 1985 retirement
.L restating its 1986 financial statements ofits 92 htW Ripley Station. As an interim to recognize a loss principally as a result of the measure, the KCC allowed an additional 46 htW of Company not being permitted to receive a return Wolf Creek capacity to be included in rate base on $125 million of its investment in Wolf Creek.
with another 46 h1W to be included pending the The net of tax loss resulting from adoption of SFAS outcome of the investigation. In h1 arch 1987, the 90, $44.9 million, together with the effect of KCC ruled the retirement of Ripley was prudent adopting SFAS 96 on this loss, resulted in a total and conditionally ruled that the additional 46 htW reduction to net income of $54.7 million, or $1.35 of Wolf Creek capacity should be included in rate per share. See Note 2 of the Notes to Financial base. The resulting $8 million increase is to become Statements for further discussion.
effective January 1,1989, if the Company Under the KCC's Wolf Creek rate order and i
demonstrates that 40 hiW of capacity is needed as a the plan, the Company has recorded deferred result of load growth or a reduction in generating phase-in revenues as current income and has capability.
recorded accumulated deferred phase-in revenues l
As electric rates have risen and alternative as an asset. Under the plan, accumulated deferred P ase-in revenues will be recovered through rates h
fuels are in plentiful supply with stable prices, the attractiveness of independent generation has on a sinking fund basis over 33 years beginning in increased. A number of the Company's larger 1992. In August 1987, the Financial Accounting industrial customers have examined the possibility Standards Board (FASB) issued Statement of of cogeneration. The loss of these customers from Financial Accounting Standards No. 92 (SFAS 92),
the system would be detrimental to the Company's Regulated Enterprises - Accounting for Phase-in i
remaining customers and its shareholders. In the Plans. The Company's plan does not meet the normal ratemaking environment, the fixed costs not requircment of SFAS 92 in that accumulated recovered due to the loss of load would be borne by deferred phase-in revenues are not recovered the remaining customers, increasing the price to the within 10 yearsc j
reduced customer base. The Company has, and will Under SFAS 92, the Company would be continue to, actively negotiate special rate contracts i
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Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) required to discontinue recording phase-in earnings per share would be $1.26, $0.75 and revenues and to write-off against retained earnings 50.22, respectively. In addition, the Company all amounts previously recorded.
would cease accruing additional phase-in revenues.
The Federal Energy Regulatory Commission The Company believes adoption of SFAS 92 for (FERC), pursuant to authority of the Federal Power financial reporting purposes would not affect future Act, has established the Unifot m System of recovery of phase-in revenues specified by the Accounts which governs tne Company's accounting plan. See Note 2 of the Notes to Financial for rate-making purposes. The Company believes Statements for further discussion, the KCC, through the plan, has established a In December 1987, FASB released SFAS 96 regulatory asset that has a very high probability of which requires companies to change from the recovery in future years. The Company is in the deferred method to the liability method of process of seeking specific approval from the accounting for income taxes. The Company has Securities and Exchange Commission (SEC) for adopted SFAS 96 in 1987 by restating its 1985 and continued recognition of its deferred phase-in 1986 financial statements. See Note 1 of the Notes revenue asset and accrual of additional phase-in to Financial Statements for further discussion.
revenues in its financial statements in accordance with the plan. As part of this process the Company Impact of Inflation &nd is seeking specific authorization from the FERC for Changing Prices continued recognition of such amounts in its regulatory accounting records.
f n December 1986, FASB issued If the Company is unable to obtain SEC
.L Statement of Financial Accounting approval,it will adopt SFAS 92 for financial Standards No. 89, Financial Reporting and Changing reporting purposes in 1988. In such event, the Prices. As a result of this statement, supplementary Company would restate prior years' financial disclosure of current costs and constant purchasing statements. In accordance with SFAS 92, the power information in the Notes to the Financial Company would eliminate phase-in revenues Statements is now voluntary. The Company has previously accrued, resulting in reductions to 1987, elected not to make these supplementary 1986 and 1985 net income of $51, $30.6 and $8.8 disclosures.
million, respectively. Corresponding reduction in Management Statement of Responsibility for Financial Statements The management of Kansas Gas and Electric Company is responsible for the financial statements, notes thereto, and other information in this report. The accompanying fmancial statements have been prepared by management in accordance with generally accepted accounting principles consistently applied. The accounting, system is in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission and the State Corporation Commission of the State of Kansas.
The integrity of the accounting records is upheld by a comprehensive system of internal accounting controls, monitored on a regular basis by the internal audit staff of the Company. This system is complemented by a set of accounting policies and procedures which provide the necessary guidance needed to institute effective internal control.
The Board of Directors maintains its oversight responsibility through an Audit Committee, consisting of three outside directors. The Committee meets with management, the internal auditors, and the independent auditors in connection with its review of matters relating to the Company's financial reporting; the Company's internal audit program; the Company's system of internal accounting controls; and services of the independent auditors. The Committee meets with the auditors without management present in order to assure independent treatment of matters brought to its attention.
The Committee also recommends to the directors the selection of independent auditors.
Wichita, Kansas James T. Clark February 9,1988 Vice President - Accounting 10
1 l
l Statements of Income l
For the Years Ended Decemt'er 31 1987 1986
_ 1985 (Thousands of Dollars)
Operating Revenues (Note 2)..................................... $
512,126 $ 496,340 $ 410,786 l
l l
Operating Expenses Fuel and purchased power.
103,944 110,417 141,291 97,646 86,422 59,314 Other operation Maintenance 43,952 41,048 34,540 Total operation and maintenance 245,542 237,887 235,145 Depreciation 72,266 84,756 45,375 Income taxes (Note 8) 22,788 21,139 26,481 Other taxes..
30,764 25,176 19,246 Total operating expenses 371,360 368,958 326,247 Op e ra tin g In co m e...............................................
140,766 127,382 84,539 Othtr Income and Deductions Phase-in revenues (Note 2) 51,037 57,518 16,306 Allowance for other funds used during construction (431)
(680) 62,652 Miscellaneous - net 8,626 5,477 5,309 Income taxes - net (Note 8)..
(1,357)
(29,639)
(10,252)
Total other income and deductions 57,875 32,676 74,015 Loss from Application of SFAS 90 (Note 2)
Disallowed plant costs 89,183 Income taxes (34,475) _
Net effect of SFAS 90....
54,708 Income Before Interest Charges and Cumulative Effect of a Change in Accounting Method 198,641 105,350 158,554 Interest Charges Long-term debt 93,733 98,202 103,433 Other interest 7,143 2,650 3,742 Allowance for borrowed funds used during construction 328 560 (46,353)
Total interest charges - net 101,204 101,412 60,822 income Before Cumulative Effect of a Change in A ccou nting M eth od.........................................
97,437 3,938 97,732 Cumulative Effect to January 1,1966 of Accruing Unbilled Revenues (Net of Income Taxes of $10,763)(Note 1) 10,918 Netincome.....................................................
97,437 14,856 97,732 Preferred S tock Divid nds.......................................
2,476 9,187 14,355 Earnings Applicable to Common Stock............................ S 94,961 $
5,669 $
83,377 Average Shares of Common Stock Outstanding....................
40,522,801 40,752,852 39,118,105 iarnings (Loss) Per Share of Common Stock:
Before Change in Accounting Principle 2.34 $
(0.13) $
2.13 Cumulative Effect 0.27 Total....................................................... $
2.3_4 $
0.14 $
2.13 Se ' notes to financial statements.
11
Balance Sheets December 31 1987 1986 (Thousands of Dollars)
Assets Electric Plant - at original cest (Notes 2 and 5)
Plant in service
$2,321,992 $2,400,384 Less accumulated depreciation.......
414,640 393,540 Net plant in service 1,907,352 2,006,844 Construction work in progress 5,483 8,146 Electric plant held for future use - net 6,727 6,445 Nuclear fuel - net....
6,974 7,157 Total electric plant - net
.... _1,926J36 2,028,592 Other Property and Investments Special deposits (Note 5).
38,846 15,858 Ou.er 559 556 Total other property and investments.
39,405 16,414 Current Assets Cash and cash equivalents 7,662 5,514 Short-term investments (Note l).
297,851 Accounts receivable and unbilled revenues..
35,383 41,507 Fossil fuel at average cost 23,125 23,866 Materials and supplies - at average cost 27,022 26,607 Prepayments and other current assets 6,8_8_1 10,987 Total current assets 397,927 108,481 Deferred Debits Deferred regulatory revenue.
98,422 28,635 Phase-in revenues (Note 2)..
124,861 73,824 Unamortized debt expense 9,299 10,422 Other 15,337 16,492 Total deferred debits 247,919 129,373 To t a l..........................................................................
12,6 R7 8 7 L2,282,860 Capitalization and Liabilities Capitalization (See Statements of Capitalization)
Common stock equity.....
$ 769,900 $ 769,729 Preferred stock - redemption not required....
18,701 18,701 Preferred stock - redemption required 18,000 Long term debt 1,016,096 1,063,464 Total capitalization 180 6_97 1,869,894 3
Current Liabilities Short term borrowings (Note 3).
47,000 7,500 Securities due within one year (Note 5)..
8,300 43,300 Accounts payable 55,251 42,482 Interest accrued........
24,830 21,482 Taxes accrued...
32,156 8,512 Customers' deposits 3,548 3,316 Total current liabilities 171,085 126,592
)
Deferred Credits and Other Liabilities l
Deferred income taxes (Note 8) 218,742 236,271 Deferred investment tax credits (Note 8) 76,284 29,636 Customers' advances..
21,172 20,467 Deferred gain from sale-leaseback (Note 6)..
319,807 Total deferred credits and other liabilities........
636,005 286,374 Commitments and Contingencies (Notes 2 and 9)
To t a l........................................................................... $ 2,61 1,73 $2,282J60 32 See notes to financial statements.
Statements of Cash Flows For the Years Ended December 31 increase (Decrease)in Cash and Cash Equiva:ents 1987 1986 1985 (Thousands of Dollars)
Cash Flows From Operating Activities
$ 97,437 $ 14,856 $ 97,732 Net income Adjustments to reconcile net income to net cash provided:
Depreciation and amortization 84,167 105,838 52,739 Deferred income taxes...
(77,492) 28,450 37,785 Deferred investment tax credits - net 51,596 (1,384)
(1,052)
Phre-in revenues (51,037)
(57,518)
(16,306)
Disallowed plant cost 89,183 l
Customer advances (702) 14,242 Allowance for other funds used during construction 431 680 (62,652)
Changes in current assets and liabilities:
Accounts receivable and unbilled revenues 6,124 (21,996) 12,511 Other current assets 4,429 (6,391)
(18,138) l Accounts payable 12,769 (3,889)
(18,942)
Accrued liabilities 26,992 (7,432) 3,311 Other current liabilities 232 485 360 Other (10,951).
(3,448) 10,649 l
Net cash provided by operating activities 143,995 151,676 97,997 l
Cash Flows From Financing Activities Proceeds from:
Issuance of first mortgage bonds 50,000 30,000 1ssuance of pollution control bonds 142,500 Issuance of common stock 533 4,814 67,192 Revolving bank loans 150,000 25,000 50,000 Special deposits (22,988) 7,875 17,156 i
Borrowings against cash surrender value of life insurance policies,,
45,944 Net borrowings (repayments) under:
Other credit agreements 923 20,902 (43,480)
Short-term borrowing agreements 39,500 7,500 (13,000)
Redemptions of:
Revolving bank loans (170,000)
(5,000)
Other long-term debt (58,300) (134,000)
(40,000)
Preferred stock (23,000) (100,000)
(15,000)
Purchases of treasury stock (39,259)
Dividends paid (58,536)
(59,115)
(94,781)
Net cash provided by (used in) financing activities (135,183) (182,024) 100,587 Cash Flows From investing Activities Additions to electric plant (less (53,920)
(41,488) (161,589) allowance for other funds used during construction).
Investments in life insurance policies (47,121)
Proceeds from sale-leaseback 392,100 Purchase of short-term investments (373,723)
Drawdown of short-term investments 76,000 Net cash used in investing activities (6,664)
(41,488) (161,589)
Net Increase (Decrease) in Cash and Cash Equivalents...................
2,148 (71,836) 36,995 5,514 77,350 40,355 Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year.............................. $ 7,662 $ 5,514 $ 77,350 J
See notes to financial statements.
13
Statements of Capitalization December 31 1987 1986 (Thousands of Dollars)
Common Rock Equity (See Statements of Common Stock Equity)
Common stock, without par value, authodzed 50,000,000 shares
$ 633,645 35.1 %
$ 633,112 33.8 %
Retained earnings 175,249 9.7 136,352 7.3 Other paid-in capital................................
265 265 Subtotal...
809,159 44.8 769,729 41.1 Treasury stock, at cost....
(39,259) (2.1)
Total Common Stock Equity 769,900 42.7 769,729 41.1 Cumulative Preferred Stock (Note 4)
Redemp%, $100 par value; authorized and outstanding 82,011 shares tion not required:
Sen/2 4-1 8,201 8,201 al, $100 par value; authorized 255,000 shares:
4.28% senes, outstandin 45,000 shares..
4,500 4,500 4.32% series, outstandin 60,000 shares....................
6,000 6,000 Redemption required Serial, ithout par value, authorized 6,000,000 shares:
i l
$8.25 series,80,000 shares 8,000 i
$13.25 series, 150,000 sha res...........
15.000 Securities due within one year..
(5,000) j Total Cumulative Preferred Stock......
18,701 1.0 36,701 2.0 l
Long Term Debt (Note 5)
First Mortgage Bonds:
Series Due 1987 1986 Series Due 1987 1986 16 %
1986-96 $ 20,400 $ 22,700 7%% 2002 $ 25,000 $ 25,000 10%%
1987
- 30,000 6.8% 2004 14,500 14,500 14%% 1987-91 24,000 30,000 9%% 2005 40,000 40,000 l
13%%
1989 100,000 100,000 8%% 2006 25,000 25,000 4%%
1991 7,000 7,000 8%% 2007 25,000 25,000 t
14.05 % 1991 30,000 30,000 6%
2007 10,000 10,000 14%%
1991 20,000 20,000 5%% 2007 21,940 21,940 5%%
1996 16,000 16,000 8%% 2008 30,000 30,000 l
8%%
2000 35,000 35,000 9%% 2016 50,000 50,000 8%%
2001 35,000 35,000 Total First Mortgage Bonds.........
528,840 567,140 Other Long-Term Debt:
Pollution Control Revenue Bonds:
l 5 3/4% series....
2003 15,000 15,000 l
Adjustable rate series.
2013 63,000 63,000 Adjustable rate series....
2013 87,000 87,000 Adjustable rate series..
2014 98,000 98,000 Adjustable rate series..
2015 79,500 79,500 l
Revolving bank loan..
. 1992-93
- 100,000 Revolving bank loan.
1991-94 150,000 70,000 i
Bankers acceptance agreement.
1987
- 20,000 l
Other icag-term agreements..
3,070 2,147 l
Unamortized premium and discount-net.
(14)
(23) l Total Other Long-Term Debt....
495,556 534,624 Securities due within one year.
(8,300)
(38,300)
Total Long-Term Debt.
_1,016,096 56.3 1,063,464 56.9 Total Capitalization......
$1,804,697 100.0%
$1,86_9&94 100.0 %
See notes to fnancial staternents.
l 14
Statements of Common Stock Equity Common Stock Other Shares Pald-in Retained Treasury Stock Issued Amount Capital Earnings Shares Amount Total (Thousands of Dollars)
Balance January 1,1985.......... 36,5 24,4 34 $561,106 $ 1,661 $181,452
$744,219 Net Income 97,732 97,732 Cash Dividends:
Common Stock-$2.065 per share (80,426)
(80,426)
Preferred Stock.....
(14,355)
(14,355) 2,000,000 38,620 38,620 Sale of Common Stock Employee Stock Purchase Plan, Employee Stock Ownership Plan and Dividend Reinvestment Plan 1,940,376 28,572 28,572 Capital Stock Expense (67)
(6_7)
Balance December 31,1985........ 40,464,810 628,298 1,661 184,336 814,295 Net income...
14,856 14,856 Cash Dividends:
Common Stock-51.225 per share (49,928)
(49,928)
Preferred Stock......
(9,187)
(9,187)
Employee Stock Purchase Plan, Employee Stock Ownership Plan and Dividend Reinvestment Plan 334,889 4,814 4,814 Capital Stock Expense..
(66)
(66)
Loss on Reacquired Preferred Stock.
(1,396)
(3,659)
(5,055)
Balance December 31,1986....... 40,799,699 633,112 265 136,352 769,729 Net income 97,437 97,437 Cash Dividends:
Common Stock-51.39 per share (56,060)
(56,060)
Preferred Stxk.....
(2,476)
(2,476)
Purchase of Treasury Stock (2,055,300) $(39,259) (39,259)
Employee Stock Purchase Plan, Employee Stock Ownership Plan and Dividend Reinvestment Plan 23,548 533 533 Loss on Reacquired Preferred Stock.
(4)
(4)
Balance December 31,1987........ 4_0J23,247 $633,645 $ 265 $175,249 (2,055,300) $(39,259) $769,900 See notes to financial statements.
Notes to Financial Statements ance for funds used during construction (AFC). AFC is defined in the applicable regulatory system of accounts as the net cost during the period of construction of borrowed
- 1. Summary of Significant Accounting Policies funds used for construction purposes, meluding nuclear System of Accounts - The Company is subject to the fuel, and a reasonable rate on other funds when so used.
jurisdiction of the State Corporation Commission of the The AFC rate (net of income taxes) was 9.18% in 1987 and State of Kansas (KCC) and the Federal Energy Regulatory 1986, and 9.38% in 1985.
Commission (FERC) and maintains its accounts in accor-and renewals of items determined to b, and replaceme hiaintenance and repairs of propert dance with the uniform system of accounts prescribed by less than units of these regulatory commissions. As a regulated utility, the property, are charged to operating ex nses. The cost of accountmg pnnciples applied by the Company differ in units of property replaced or renewed, lus removal costs, certam respects from those applied by non-regulated busi-less salvage, is charged to accumulate depreciation, and D'55-the cost of related replacements and renewals is added to Eltctric Plant - The cost of plant includes contracted electric plant. Betterments are charged to electric plant.
work, direct labor and materials, allocable engineering, Revenues-Prior tojanuar 1,1986,operatingrevenues supervision, general and administrative costs, and allow-ncluded amounts actually bi ed for services rendered. To 15 m ~
provide a better matching of the Company's revenues and provisions of this statement. This statement requires the expenses, effective lanuary 1,1986, the Company adopted Company to establish deferred tax liabilities or assets, as a change in accounting method to provide for accrual of appropriate, for all temporary differences, and to adjust estimated unbilled revenues. Unbilled revenues result deferred tax balances to reflect changes in tax rates expect-from services delivered since the period covered by the ed to be in effect during the periods in which the tempo-latest billings to customers. The cumulative effect to Janu-rary differences reverse. The significant temporary dif-ary 1,1986 of this accounting change increased 1986 net ferences that give rise to the net accumulated deferred income approximately $10.9 million (net of related income income tax liabilities as of December 31,1987 and 1986 taxes of $10.8 million).
include accelerated tax depreciation, AFC, unamortized Had this new accounting method been in effect during investment tax credits, deferred gain from sale-leaseback, 1985, net income would not have been materially different and phase-in revenues.
than that shown in the financial staMments.
In accordance with various rate orders received from the Statements of Cash Flows -The Company has adopted KCC, the Company has not yet collected through rates the Statement of Financial Accounting Standards No. 95, amounts necessary to pay a significant portion of the net Sta!cment of Cash Flows, in 1987, and has conformed its deferred income tax liabilities recorded at December 31, 1986 and 1985 financial statements to include statements 1987 and 1986. As the Company believes it is probable that of cash flows for those years. For purposes of the state-the net future increases in income taxes payable will be ments of cash flows, the Company considers highly liquid recovered from customers through future rates, it has debt instruments purchased with a maturity of three recorded net deferred regulatory revenue assets for the months or less to be cash equivalents.
Portions of the net income tax liabilities not yet collected The following amounts ofinterest (net of amounts cap.
through rates. These assets are also a temporary difference italized) and income taxes paid for each of the three years f r which additional deferred mcome tax liabilities have in the period ended December 31,1987, are as follows:
been provided at each balance sheet date.
The effects of adopting SFAS 96 on net income for the 1987 1986 1985 years ended December 31,1987 and 1985 were not signifi-Interest
$98 248 $105,552 $57,176 cant; 1986 net income was reduced by $7.8 million.
Income taxes 13_4,800 $
Investment Tax Credits - The Tax Reform Act of 1986 repealed the investment tax credit on property placed into Cash Surrender Value of Life Insurance Policies -
service atter December 31,1985, subject to certain transi-Other deferred debits at December 31, li87, mc'ade $1.2 tion rules. In accordance with KCC requirements, invest-million representing the excess of the cash surrer der value ment tax credits relating to utility property placed into of the Company s mvestment m life insurance contracts service are deferred when utilized and are being amortized
($47.1 million) over the amount of borrowings ($45.9 mil-to income over the remaininglives of the related property.
lion) against such contracts.
- 2. Regulatory Matters Short Term Investments - Short-term investments Rate Recognition of Wolf Creek -In connection with represent the unexpended proceeds a t December 31,1987, the start of commercial operation of Wolf Creek Generat-from the sale-leaseback described in Note 6. These invest-ing Station (Wolf Creek) in 1985, the KCC granted the ments consist primarily of certificates of deposit and vari-Company, effective October 3,1985, a $169.6 million able rate municipal and state debt instruments having an interim rate increase subject to refund or adjustment. In average maturity of approximately 30 days and variable determining the amount of the rate increase, the KCC rate preferred stock. Cost of these investments approxi-tentatively disallowed a rate of return on a significant mates market.
portion of the Company's investment in Wolf Creek, and Fuel Costs - The cost of nuclear fuel in process of disallowed recovery of approximately $125 million it refinement, conversion, enrichment, and fabrication is deemed imprudent. The rate increase of $169.6 million recorded as an asset at original cost and is amortized to was to be phased in over three years in the amounts of expense based upon the quantity of heat produced for the
$135, $20 and $14.6 million in years one through three, generation of electricity. The accumulated amortization of respectively. Revenues recorded but not currently billed nuclear fuel was $39 million at December 31,1987, and $25 under the phase-in plan, plus a rate of return on such million at December 31,1986.
amounts, were to be collected in years four through eight The Company's rate schedules include a fuel adjustment via an additional rate increase in those years.
clause which permits current recoveries of fuel costs.
In March 1987, the KCC approved the rate stabilization lP an (plan) which modified its interim rate order for Wolf Depreciation - For financial reporting purposes, the Company uses the straight line method to depreciate the Creek. Significant modifications of the interim rate order original cost of property over its estimated remaining ser.
affecting the rate recognition of Wolf Creek included:
vice life. The provision for depreciation stated as a percent O The $135 and $20 million rate increases were made of original cost of depreciable property was 2.9% for 1987 permanent. The $14.6 million rate increase was delayed and 3.4% for 1986 and 1985.
to January 1,1989, and will also be a permanent income Taxes - The Company has adopted Statement increase. A fourth permanent rate increase of $15.6 of Financial Accounting Standards No. 96, Accounting for million will become effective January 1,1992.
Ircome Tarcs (SFAS 96),in 1987, and has elected to restate O The Company will be permitted to carn a rate of return its 1986 and 1985 financial statements to conform to the on its entire investment in Wolf Creek other than the 16
l 1
approximately $125 million of costs which the KCC new statement, which becomes effective in 1988, specifies fcund to be imprudent. Approximately 50% of Wolf certain requirements which must be met in order to recog-Creek's capacity deemed to be excess capacity by the nize phase-in plans (as defined by SFAS 92) for financial KCC will be phased into rate base over five years begin-reporting purposes. The SFAS 92 requirement that all ning in 1987, with the remaining portion of the Wolf phase-in revenues be recovered within 10 years is not met Creek investment not in rate base accruing a rate of by the plan, which provides for recovery of Wolf Creek return of approximately 5%. The Company will be related phase-in revenues over the remaining life of Wolf permitted to recover costs deemed imprudent over the Creek beginning in 1992.
life of Wolf Creek.
The Company believes the KCC, through the plan, has O The depreciation rate for Wolf Creek was changed from established (and continues to establish through additional approximately 3.4% to 2.6% as a result of a change in its phase-in revenue accruals) a regulatory asset that has a depreciable life from 30 to 40 years.
very high probability of recovery in future years. Accord-O The order reaffirmed the h1 arch 1986 order permitting ingly, management, with approval from the Company's the eight-year amortization of approximately $96 mil.
Board of Directors, is in the process of seeking specific lion of deferred income taxes. Such an amount repre.
approval from the Securities and Exchange Commission sents the tax effects relating to the allowance for bor.
(SEC) for continued recognition of its deferred phase-in rowed funds used during construction capitalized for revenue asset and accrual of additional phase in revenues Wolf Creek.
in its financial statements in accordance with the plan. As O The Company will accrue phase-in revenues of $14.6 P, art of this process the Company is seeking specific autho-million annually, plus a rate of return on total phase-in rization from the FERC for continued recognition of such revenues accrued, until the third rate increase of $14.6 amounts m its regulatory accounting records.
I million is implemented in 1989. The Company will If the Company is unable to obtain SEC approval,it will accrue a rate of return on accumulated phase-in reve-adopt SFAS 92 for financial reporting purposes in 1988 by nues for years 1989 through 1991. The gross method restating prior year financial statements as permitted by will be used to record the income tax effects of these the statement. In accordance with SFAS 92, the Company accruals.
would eliminate phase-in revenues previously accrued, O Beginning January 1,1992, the accumulated phase-in resulting in reductions to 1987,1986 and 1985 net income revenues and accrued rates of return on excess capacity of $51, $30.6, and $8.8 milh,on, respectively, and corre-will be amortized for recovery over the remaining life of sponding reductions m earnings per share of $1.26, $0.75, Wolf Creek.
and $0.22, respectively. In addition, the Company would cease accruing additional phase-in revenues. The Com-The KCC is permitting the Company to combine an Pany believes adoption of SFAS 92 for financial report, g m
approximate $800 million stream of income to be gener.
Purposes would not affect future recovery of phase-m ated over the next 40 years through corporate-owned life revenues SPecified by the plan.
insurance policies on certain company directors, officers and management employees with utility operating reve-
- 3. Short-Term Borrowings nue to cover the revenue requirements as a result of the At December 31,1987, the Company had tank credit preceding regulatory accounting changes.
arrangements available of $75 million. hiaximtm short-Statement of Financial Accounting Standards No. 90 term borrowings outstanding during 1987 and 1986 were (SFAS 90)-In December 1986, the Financial Accounting
$156 million on November 10 and 11,1987 an.i $17.5 Standards Board (FASB) issued SFAS 90, Regulated Enter.
million on h1 arch 17,1986. The weighted average interest prises - Accounting for Abandonments and Disallowances of rates, excluding fees, were 7.7% for 1987 and 8.1% for Plant Costs, which amends the presently prescribed 1986.
accounting standards for these two types of events that
- 4. Cumulative Preferred Stock have occurred primarily in the electric utility industry.
The call prices at December 31,1987, on the 4-1/2%,
I Among the provisions of SFAS 90 is a requirement that any 4.28% and 4.32% series preferred stocks are $110, $101 disallowance of the cost of a recently completed plant, and $101.64, respectively. The embedded costs of pre-including a return on such cost, be recognized as a loss. As ferred stock at December 31,1987,1986 and 1985 were permitted by the new standard, the Company has elected 4.44%,8.38% and 10.06%, respectively.
to adopt SFAS 90 in 1987 by retroactively restating its 1986 financial statements for the effects of Wolf Creek related
- 5. Long-Term Debt disallowances (principally the KCC's disallowance of a Required redemptions and sinking fund payments for return on approximately $125 million of the Company's 1988 through 1992 for long term debt are $8.3, $108.3, investment in Wolf Creek). Restatement of the Company's
$8.3, $102.8 and $39.8 million, respectively. The redemp-1986 financial statements for the effects of SFAS 90 tion requirements for 1991 and 1992 would be increased by resulted in reductions of net income of $44.9 million and
$220 and $28 million, respectively, in the event that the earnings per share of $1.10 from previously reported irrevocable letter of credit agreements with respect to the amounts.This teduction, together with the effect of adopt-
$63, $87 and $98 million adjustable rate series are not ing SFAS 96 on this loss, resulted in a totai reduction to net extended or other arrangements for collateral are not income of $54.7 million or $1.35 per share.
made.
Statzment of Financial Accounting Standards No.92 First mortgage bonds may be issued in additienal (SFAS 92) - In August 1987, the FASB issued SFAS 92, amounts, limited by property, earnings and other provi-Regulated Enterprises Accounting for Phase-In Plans. The sions of the Company's hiortgage dated April 1,1940, as t
37
supplemented (Mortgage). Electric plant is subject to the The lease requires an initial lease payment of approx-lien of the Mortgage except for transportation equipment.
imately $19.9 million due in September 1988, followed by in 1987, the Company placed funds of $24 million in an unequal semiannual lease payments for the remainder of irrevocable trust to be used solely to repay the 5-7/8%, $25 the lease. The total of such lease payments for each year million first mor tgage bonds due 2007 if certain conditions after the first year of the lease generally range from are not met. The funds were placed in trust as a result of the approximately $41.7 million to $51.2 million, except that sale and leaseback of La Cygne 2 described in Note 6.
total payments of approximately $69.6 and $23.3 million The 6.8% series, due 2004, and the 5-7/8% and 6%
are due in years 20 and 29 of the lease, respectively. The series due 2007 are pledged as collateral for pollution Company is accruing annual lease expense based on the control revenue bonds issued by Kansas municipalities.
expected usage of the plant for the year in relation to total The four adjustable rate series pollution controi revenue expected usage over the initial lease term. The gain of bonds are secured by irrevocable letters of credit. Interest approximately $322 million realized as a result of the sale rates for these bonds are variable and are determined on f La Cygne 2 has been deferred for financial reporting the basis of prevailing market rates for debt instruments of purposes, and is being amortized over the initial lease term like tenor and quality. The Company is required to main-1n Proportion to the related lease expense. The Company s 987 lease expense, net of amortization of the deferred 4
tain special deposits to be used for debt service for the $87 and $98 million adjustable rate series. Such accounts may Sam, S PProximately $7.5 milhon.
be used for interest payments, but must be subsequently Future minimum annual lease payments required under replenished to the required account balance of $15.7 mil-the agreement are as follows (in thousands):
lion. The following information is applicabic to these 1988 19,851 1989 41,737 Weighted 1990 41'856 Letters of Credit Average Net Description Expiration Dates Interest Rate 1991 41,856 1992 41,856 1987 1986 Series due 2013 Thereafter 1,138,276
$63 million December 17,1991 5.4 %
4.6%
- 7. Retirement Plam Series due 2013 December 2,1991 The Company has a noncontributory, defined benefit
$87 million and May 1,1992 5.0%
5.0%
pension plan for all employees. Plan benefits are generally Series due 2014 based on years of service and the employee's highest
$98 million November 3,1991 6.0%
6.2%
aggregate compensation in five consecutive years of the Series due 2013 final ten years of service. Due to the present funding status
$79.5 million August 15,1993 6.0 %
6.1%
of the plan, the Company's current funding policy is to The Company has two revolving bank loans. Ore loan, contribute the minimum amount required by federal law.
due 1993,is comprised of a revolving credit loan up to $100 During 1986, the Company adopted Statement of Finan-million until December 19,1992, followed by a $50 million cial Accounting Standards No. 87, Employers' Accounting loan. A second loan, due 1994, enables the Company to for Pensias (SFAS 87), which changed the Company's borrow up to $150 million on a revolving credit basis until method used to determine its net periodic pension cost.
June 30,1991, at which time the maximum borrowing limit Annual pension costs for the years 1987,1986 and 1985 is reduced by $37.5 million. The limit is further reduced by were $1.0, $2.1 and $3.7 million, respectively. The an additional $37.5 million on both June 30,1992 and decrease in 1987 and 1986 pension costs Irom 1985 costs 1993, and the loan terminates on June 30,1994. Both loans resulted primarily from changes in the Company's method may be repaid prior to their due dates without penalty. The of determining pension expense due to its adoption of weighted average interest rate, including fees, was 7.7%
SFAS 87.
for 1987 and 8.0% for 1986.
Net periodic pension cost for 1987 and 1986 included the The embedded costs oflong-term debt at December 31, following components (in millions):
1987,1986 and 1985 were 8.93%, 8.88% and 9.07%,
1987 1986 respectis elv.
Service cost - benefits earned
- 6. Sale and Leaseback of La Cygne 2 during period
$ 2.0 $ 3.0 In September 1987, the Company sold and leased back Interest cost on projected benefit its 50% undivided 5 est in La Cygne 2. The lease has an obligation 5.2 4.9 in3tial term of 29 y.
with various options to renew the Actual return on assets 2.9 (18.1) lease or repurchas
. 50% undivided interest. The Com-Net amortization and deferral (9.1) 12.3 pany remains reyonsible for all operation and mainte-Net periodic pension cost 1.0 L2.1-nance costs, and other related operating costs of La Cygne
- 2. The Company has determined the lease is an operat:ng lease for fmancial reporting purposes.
18
The following table sets forth the plan's funded status at Income taxes as recorded in the Statements of Income are:
November 30,1987 and 1986 (the plan years) and a recon-1987 1986 1985 ciliation of such status to the December 31,1987 and 1986 (Thousands of Dollars) financial statements (in millions):
Operating expenses:
1987 1956 Currently payable -
Federal
$ 32,858 $
Actuarial present value at November 30:
Vested benefit obligation
$ 49.7 $ 48.0 Defe ed -
Accumulated benefit obligation
$ 53.5 $ 53.7 Federal (65,729) 19,190 24,101 State..
(11,763) 3,333 3,432 Plan assets at November 30 Investment tax credit -
(principally ccamon stock of public anies and U.S. government A
tt ation 2
) (1,384) _(1 052) 77f 8L7 Projected benefit obligation at Total.
22,788 21,139 26,481 November 30.
(67.9) (72.2)
Other income and Plan assets in excess of projected deductions:
benefit obligation at November 30 9.9 12.5 Currently payable -
Unrecognized net gain from past Federal 1,017 experience different from that State 430 Deferred -
assumed (9.8) (11.3)
Prior service cost not yet recognized Federal 25,608 8,858 l
in net periodic pension cost 2.2 2.3 State.
4,031 1,394 Recognition of net asset at Investment tax January 1,1986 over 18 years.
(4.4)
(4.7) credit amortization (90) l Contribution accrued for December
(.1)
(.2)
Total.
1,357 29,639 10,252 l
Pension liability recognized in the Disallowance of balance sheet at December 31 5 (2 J) $ (1.4) plant costs-deferred l
(Note 2)
- (34,475)
The following were used in the determination of actu-Change in accounting l
arial present values of the projected benefit obligations at method - deferred December 31:
(Note 1) 10,763 1987 1986 Inc me tax expense -
net.
$ 24,145 5 27 066 $ 36,733 Weighted average discount rate 8.0 % 7.5%
a-Rate of increase in future Deferred income taxes compensation 6.0 % 6.0%
consist of:
Long-term rate of return Accelerated on assets 8.0% 8.0%
depreciation.
$ 34,464 $ 54,780 $ 41,179 Disallowance of plant
- 8. Inc@me Taxes:
costs (Note 2)
- (34,475)
The effective federal income tax rates differ from the Phase-in revenues amounts computed by applying the federal statutory rates (Note 2)..
26,876 7,536 to income before federal income taxes. The reasons, with Unbilled revenues (2,550) 10,199 related percentage effects, arr Accelerated amortization f' 3,015) (13,920) 1987 1986 1985 AFC - borrowed (144)
(27 T, 2
2 Statutory federal income tax rate 40 % 46% 4 6 Overheads capitalized
{
Add (Deduct) income tax effects of:
- net.
115 4U 6,467
}
Phase-in revenues (Note 2)
(17) -
Net operating tax loss 47,291 (13,160) (40,i98)
I Accelerated amortization of Deferred gain on deferred income tax credits sale-leaseback.
(140,926)
(Note 2)
(11) (33) -
Other - net.
(2,727) (2,005)
(211)
Effect of change in tax rates 18 Total.
$_(71492) $ 28,450 $ 37,785 Allewances for other funds used during construction (21)
At December 31,1987, the Company has unuscJ invest-Depreciation 6
35 ment tax credits of approximately $35 million available for Benefit from state income taxes (2)
(7)
(2) carryforward to future years which, if not utilized, will Amortization of investment expire in the years 2000 through 2002. As a result of the tax credit (2)
(3)
(1)
Tax Reform Act of 1986, these unused credits will be Other items - net (no one item reduced to approximately $28 million effective January 1, makes up up more than 2%)
1 3
3 1988. These credits have been applied in determining the Effective federal income tax rate 15 % 59 % 25 %
Company's net deferred income tax liability and i9
corresponding deferred regulatory revenue asset at spective assessment of up to $19.8 million in the event December 31,1987.
there are losses which exceed premiums and reserves of
- 9. Commitments and Contingencies:
the insurer.
Spent Nuclear Fuel Disposal - Under the Nuclear
- 10. Joint Ownership of Utility Plants:
Waste Policy Act of 1982, the U.S. Department of Energy Company's Ownership at December 3L 198L (DOE)is responsible for the ultimate storage and disposal In-invert.
of spent nr. lear fuel removed from nuclear reactors.
Service ment in Accumulated Net Per-Under a contract with the DOE for disposal of spent Dates WHm D m niaHon M gnl nuclear fuel, the Company pays a quarterly fee to DOE of 1 La Cygne June mill per kilowatthour on net nuclear generation. Such fees
- 1(a).
1973 $ 118
$59 343 50 were $3.1 and $3.3 million in 1987 and in 1986, respec-Jeffrey July tively.
- 1(b) 1978 64 18 132 20 Decommissioning - The Company's share of Wolf Jeffrey hiay Creek decommissioning costs are estimated to be approx.
- 2(b).. 1980 62 15 134 20 imately $66 million in 1985 dollars. Electric rates charged Jeffrey hiay to customers provide for recovery of decommissioning
- 3(b)...
1983 89 14 137 20 costs over the life of Wolf Creek. Amounts so collected Wolf Creek Sept.
from customers are deposited in an external trust fund and
- 1(c) 1985 1,356 96 530 47 will be used solely for the physica; decommissioning of the (a) Jointly owned with Kansas City Power & Light Com-plant. At December 31,1987 and 1986, $1.8 and 50.8 pany.
mill on, respectively, was on deposit in the decommission-E (b) Jointly owned with The Kansas Power and Light Nuclear Insurance - The Price-Anderson Act currently Company, Central Telephone and Utilities Corp. and limus the combmed public liability of the owners of 112 hiissouri Public Service Company.
(c) Jo ntly owned with Kansas City Power & Light Com-nuclear power plants to $720 million for a smgle nuclear incident. The Wolf Creek Owners have purchased the pany and Kansas Electric Power Cooperative, Inc.
maximum available private insurance of $160 million and Am unts and capacity represent the Company's share
- he balance is provided by an assess. ent plan mandated and have been financed by the Company. The Company's by the Nuclear Regulatory Commission Under this plan, share of operating expenses of the plants in service acove, the Wolf Creek Owners are jointly and severally subiect to as well as such expenses for a 50% undivided interest in La a retrospective assessment of up to $5 million ($2.35 mil-Cygne 2 (representmg 315 hiW capacity) sold and leased lion, Company's share) in the event there is a nuclear back to the Company in 1987, are included in the operating incident involving any of the nation's licensed reacters.
expnses on the Statements of Income.
There is a limitation of $10 million ($4.7 mi!! ion, Com-
- 11. Quarterly Financial Statistics (Unaudited) pany's share)in retrospective assessments in any one year.
(Thousands, except per share amounts)
Although certain provisions of the Act expired in 1987, the owners remain covered under it. Congress is consiciering a 39g7 renewal and modification of the Act. Should it be renewed, 4th Qa. 3rd Qtr. 2nd Qtr. Ist Qtr.
the new provisions are expected to apply to the Company.
Operating The Company is unable to pred:ct the effect such actions Revenues... $110,488 $163,954 $124,349 $113,335 l may have on the Company's potential liability.
Operating The Company carries the maximum property and income.
19,063 54,034 35,586 32,083 !
decontamination insurance, approximately $1.4 billion, Net income...
12,408 43,138 22,768 19,123 i provided by a combination of "nuclear insurance pools" Earnings and Nuclear Electric Insurance Limited (NEIL). The insur.
Applicable ance provides coverage against decontamination and to Common property damage to nuclear generating facilities. The min-Stock..
12,203 42,436 22,066 18,256 imum coverage currently required by the Nuclear Reg-Average ulatory Commission is $1.1 billion. The Company also Shares carries additionalinsurance with NEIL to cover the costs of Outstanding.
39,661 40,820 40,818 40,801 replacement power during prolonged outage at Wolf Earnings Per Creek. In the event of a claim by any member of NEIL Share..... $
0.31 $
1.04 $
0.54 $
0.45 under the above coverages, the Company may be subject to an assessment if losses exceed premiums, reserves and other NEIL resources. As of December 31,1987, the max-imum potential assessments to the Company under the NEIL policies total approximately $28.2 million.
Director's and Officer's Insurance The Company car-ries director's and off cer's liability insurance with a mutual insurance company. The Company is subject to a retro-20
% v
1986 tively or f(0.03), $0.03 and $0.05 per share, respectively.
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
Net income and earnings applicable to common stock for
% ting the first quarter of 1986 include the net cumulative effect to Revenues... $114,269 $156,736 $116,985 $108,350 January 1,1986, of the change in accounting method of Operating approxima tely $10.9 milhon, or 5.27 per share (see Notc 1).
Income...
17,633 45,750 33,519 30,480 As discussed in Notes 1 and 2, the Company elected to Net Income adopt in 1987, SFAS 90 and SFAS 96 by restating its (lo ss)..
(54,998) 29,680 16,574 23,600 financial statements from prior periods. As a result, net Earmngs loss and loss applicable to common stock for the fourth (loss) quarter of 1986 have been increased by approximately Applicable
$52.8 million, or $1.30 per share, from previously reported to Common amounts.
Sterk.....
(56,387) 27,368 14,220 20,468 The Company's business is subject to seasonal fluctua-Average tions with the peak period occurring during the summer Shares months. Aremlingly, earnings information for any three-Outstanding..
40,800 40,744 40,742 40,735 month period should not be considered as a basis for Earnings estimating resultM operations for a full year.
(Loss) Per Share..
$ (1.38) $
0.67 $
035 $
0.50 Market Prices and Dividend Rates of Common Stock:
U N
- d'"d*
In the fourth quarter of 1986, the Company changed its method of accounting to provide for accrual of estimated Common-NYSE 1987 1986 1987 1986 unbilled revenues. Accordingly, the results for prior 1986 first Quarter
$25% $21% $18% $14
$34 $.295 l
qusrters have been restated to reflect the accounting SECOnd Quarter 23 %
18 % 19 15 %
34
.295 chinge as of January 1,1986. The effect of the accounting Third Quarter 25 % 19% 20 % 17%
34
.295 change was to increase (decrease) 1986 first, second and Fourth Quarter 22 %
16 23 % 18 %
37 34 third quarter net income before cumulative effect of The Company had 34,648 common stockholders as of i
acco..nting change by $(1.5), $1.4 and 2.3 million, respec-December 31,1987.
l l
Auditors' Opinion To the Stockholders and the l
Board of Directors of l
Kansas Gas and Electric Company:
We have examined the balance sheets and statements of capitalization of Kansas Gas and Electric Company as of December 31,1987 and 1986 and the related statements ofincome, of common stock equity, and of cash flows for each of the three years in the period ended December 31,1987. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, such financial statements present fairly the financial position of the Company at December 31,1987 and 1986 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1987,in conformity with generally accepted accounting principles applied on a consistent basis, except for the change in 1986 in the method of recognizing unbilled revenues and after restatement for changes in 1987 in the methods of accounting for income taxes and disallowed plant costs; we concur with these changes, which are described in Notes 1 and 2 to the financial statements.
Kar.sas City, Missouri Deloitte Haskins & Sells February 9,1988 21
Comparative Electric Statements Annual Compound Growth Rates 5
10 1987 1986 1985 Year Year Electric Operating Revenues (Thousands)
Residential
$ 187,256 $ 181,605 $ 147,183 9.1 11.9 Commercial 129,667 125,979 100,651 10.3 10.9 Industrial 155,645 151,699 129,313 7.3 10.0 Public street and highway lighting 5,472 5,385 4,241 9.2 12.5 Retail rates 478,040 464,668 381,388 8.8 11.0 Wholesale rates 26,383 24,756 23,873 (6.2)
(.1)
Total sales of electricity........
504,422 489,424 405,261 7.6 10.0 Other.....
7,704 6,916 5,525 46.6 22.0 Total electric operating revenues
$ 512,126 $ 496,340 $ 410,7.86 7.9 10.1 Sales in Kilowatthours (Thousands)
Residential 2,076,150 2,034,158 2,063,973
.8 1.6 Commercial 1,681,847 1,658,665 1,629,227 2.3 2.4 Industrial 2,862,695 2,671,181 2,694,588 2.0 1.5 Public street and highway lighting 53,022 54,792 56,817 (4.1)
(1.6)
Retail rates 6,673,714 6,418,796 6,444,605 1.6 1.7 Wholesale rates 3 253,644 1,157,888 983,983 3.1 (2.3)
Total kilowatthours sold 2 927 358 7,576,684 7,428 588 1.8
.9 a
2 Customers at End of Year Residential 224,162 222,283 220,516 1.2 17 Commercial 20,619 20,286 20,206 1.5 1.1 Industrial 4,365 4,356 4,542
(.5) 2.8 Public street and highway lighting 785 762 715 5.1 7.1 Retail rates 249,931 247,687 245,979 1.2 1.6 Wholesale rates 39 39 38 (1.5)
(9.0)
Total electric customers 249,970 247,726.
246 017 1.2 1.6 Residential Average kilowatthours per customer 9,314 9,202 9,435
(.5)
(.1)
Average revenue per customer
$ 840.07 $
821.51 5 672.85 7.8 10.0 Average revenue per kilowatthour 9.02c 8.93 c 7.13 e 8.3 10.2 Kilowatthours Generated and Purchased (Thousands)
Generated (net after station use) 8,348,820 7,879.853 6,506,528 3.9 2.2 Purchased.....
226,251 350,405 1,590,515 (24.4)
(13.3)
Total available 8,575,071 8,230,258 8,097,043 1.9 1.1 Company use, line loss, etc.
647,713 65',574 668,455 2.4 3.3 Total kilowatthours sold..
2927J58 4 576,684
_7 428,588 1.8
.9 1
Average BTU per Net Kilowatthour Generated 11,010 11,001 11,184
(.1)
Average Fuel Cost per Million BTU.
1.09 $
1.20 $
1.54 (8.3)
.9 Power Resources (Megawatts)
Available capa city.............................
2,399 2,435 2,097 3.4 1.7 System peak responsibility 1,653 1,627 1,612
.3 1.5 Reserve capacity 746 808 485 13.1 2.2 Utility Plant at Original Cost (Thousands)
Beginning of year.
$2,460,050 $2,556,439 $2,358,404 11.2 13.8 Capital expenditures 53,489
^40,808 224,241 (25.2)
(6.7)
Retirements..
119,660 137,197 26,206 44.9 End of year.
2,393,879 2,460,050 2,556,439 7.5 11.9 Accumulated depreciation..
467,343 431,458 338,961 13.7 12.7 Net utility plant
$1,926,536 $ 2,028,592 $2,211478 6.2 11.7 Employees at End of Year 1,275 2,410 2,513 (7.2)
(.5) 22
Stockholder Information Annual Meeting Registrars The annual stockholders' meeting will be held May Preferred Stock:
25,1988, at the General Office of the company,120 East Bank IV, Wichita First, Wichita. Proxies for this meeting will be solicited Common Stock:
by management. A proxy statement will be mailed t Bank IV, Wichita, and stockholders about April 15,1988.
First National Bank of Chicago 1987 Annual Report Bonds: Trustee, Registrar and Paying Agent rgan uaranty Tmst Company of New M This report is prepared primarily for the information 30 West Broadway of company stockholders and is not issued m. connection New York, New York 10015 with the sale, or offer for sale of, or solicitation of an offer to buy any securities of the company.
Stock Exchange Listing The company's common stock is listed on the New General Offices York and Pacific Stock Exchanges.
120 East First Stock Symbol: KGE P.O. Box 208 Wichita, Kansas 67201 Stockholder Records and Dividend Reinvestment Phone: (316) 264-1141 KG&E Stockholder Records Department P.O. Box 208 Transfer Agents W chita, Kansas 67201 Preferred Stock:
Phone: Kansas -(call collect)
First National Bank in Wichita (316) 261-6640 Trust Department Outside Kansas Box One 1-800 527-2495, Ext. 6640 Wichita, Kansas 67201 Additional Information Common Stock:
The company's form 10-K is filed with the Securities First National Bank in Wichita and Exchange Commission and is available upon request Trust Department from that agency or from the Company.
Box One Wichita, Kansas 67201 For a copy of KG&E's "Financial and Statistical Report 1977-1987" or other information, contact:
First National Bank of Chicago KG&E Investor Relations Department Stock Transfer - Suite 0122 P. O. Box 208 One First National Plaza Wichita, Kansas 67201 Chicago, Illinois 60670 Phone: Kansas - (call collect)
(316) 261-6929 Outside Kansas 1-800-527-2495, Ext. 6929 Service Area Map f
Map tegend cenerating station, Capability and Fuel
- ~ ~
Cities with Customer j Gordon Evans Steam Services Offices e Electnc Station,510 htW, Transmission Line, Natural Gas N
Interconnections and 2 hichita Steam Electric Station,3 htW, Diesel y
, ?.f,j /
(
_r; Power Pool Memberships y;
/ p a. v).
3 hturray cul Steam Electne Direct interconnections are Station,324 htW, Natural C"
e. r maintained with 10 other utilities and the company is 4 t, Cygne Steam Electric Station,658 htW, Coal "y
-f.,~
'J
. T ", _,
a member of the Southwest Power Pool. Power is 5 W lf Creek Generating
'N Station,530 htW', Nuclear aa ;
regularly transmitted to and 6 Jeffrey Energy Center,+
,s
^
p.
l from other utilities to ensure 403 h1W', Coal
.pi== =
reliability and economy.
- femtly owned with other i
stristres. Capacity stated is AG&E l ~::'
l
. ~, ' '
t Unst 2 rqresentsng 315 AtW is
'1,
_,. '. baowt
~
allocation
.inkhm y,,n h 4 34.
e.[ *. :, '. I Go
+ Located 130 males northeast of traged long.gern.
ukLAHuuA Wh huts. Not shewn en map.
23 1
L A
u
- Kansas Gas and Electric Company Key Number o g ;{,;,
P.O. Box 208 Wichita, Kansas 67201 tsistye imi)
Address Correction Requested l'ermit in~
Return Postage Guaranteed M ithita. k%
Directors' Frank J. Becker 0981)
Robert T. Crain 0981)
Marjorie I. Setter 0980) 0,4,7) Chairman and Chief Executive (S) Crain Realty Company, Fort Scott, KS (4) President. Setter and Associates, Inc.,
Officer, Becker Corporation and First Adverstising and Public Relations, Natioral Bank & Trust Co., El Dorado, KS Ralph Eoster 0970)
Wichita, KS (4,7) Vice President - General Counsel of the Glenn Biggs 0966)
- Company, Wichita, KS Donald C. Slawson 0983)
(6) Chairman and Chief Executive Officer, '
(3,7) Chairman of the Board and President.
Gill Savings Association, San Antonio, TX Donald A.Johnston 0980)
Slawson Companies. wichita, KS t2,5) Corporate General Ma sager, Howard Brenneman (1985)
Maupintour,Inc., Lawrence, KS Dr. Newton Smith 0985)
Investment / Financial Consultant.
Physician Arkansas City, KS Hession, KS Glenn L Koester 0986)
Vice ? resident -Naclear of the Company.
Lawrence E. Walsh 0986)
- A. Dwight Button 0976)
Wichita, KS (6) Attorney and Former Federal District 0,2,4,7) Retired Chairman of the Board, Court Judge, Oklahoma Ctty OK Fourth Financial Corp Wichita, KS Russell W Meyer 1r.0982)
($,7) Chairman and Chief Executive Officer, Wilson K. Cadman 0978)
Cessna Aircraft Company, Wichita, KS 0,7) Chairman of the Beard and President of Advisory Director the Company, Wichita, KS
. James J. Noone 6%).
Ralph P. Fiebach 0967)
(6) Attorney and Retired Administrative Retired Chairman of the Board cf the C, T. Cartet 0968)
Judge for the District Court of Sedgwick Company, Wichita, KS G,3) Retired Vice President, Pipeline County, Wichita, KS Tra ortio A anti:RichfieldCompany,
,y,,,,,,,,,g,,g,,,,g,,,,,,,,g,,,,,,_
- (2.3.4) Publisher, " Wichita Business Commit tees: (!) Executive; (2) Compensation C. Q. Chandler 0974)
Jew;al," Wichita, KS and Benefit;(3) Audit.(4) Shareholder G.4,5,7) Chairman of the Board, First Relations:(5) Nominaung; (6) Special -
National Bank in Wichita. KS Litigation;(7) Planning Officers Wilson K. Cadman,60*
Robert L Rives,54' William B. Moore,35 W. R. Whitmer, 54 l
l Chairman of the Board and President Group Vic.? President Vice President. Ti.tance Tressu rer i
Kent R. Brown,43' James T. Clark,47 Tom Underwood,50 Verna L Ridgeway,60
)
Group Vice President Vice Presistent. Accounting Vice President. Human Rescurces Assistant Voce Prcsileet - Conwner Adws Richard M. Haden,48' Ralph B. Foster,59' E. D. Prothro, 55 J. F. Klassen, 53 Group Vice Presi6nt Vice President GeneralCounsel Controller and Anistant Secretary Anistant Treswer-James S. Haines, Jr.,41' Glenn L Koester,62' Richard D. Terrill,33 Jack Skelton,57
. Grcsp Vice President Vice President. Nuclear Secretary and Arterney Assistant Sevetary
' Policy Group member E
'4
Audited Financial Statements and Other Financial Information Kansas Electric Power Cooperative, Inc.
December 31,1987 l
Elli Ernst&Whinney i
l i
Audited Financial Statements and Other Financial Information KANSAS ELECTRIC POWER COOPERATIVE, INC.
December 31, 1987 i
Audited Financial Statements 1
Auditors' Report Balance Sheets..
3 Statements of Patronage Capital (Deficit) and Other Equitie-5 6
l Statements of Operations 7
Statements of Changes in Financial Position.
Notes to Financial Statements.
9 Other Financial Information Auditors' Report on Other Financial Information.
18 Wholesale Power Data (Unaucited).
9
]
(
T
.-r r.-
,--m n -
-r
l Ernst &Whinney 2000 city conier square 1100 Main Street Kansas City, Missouri 64105 816/474-8050 Board of Trustees Kansas Elec' Power Cooperative, Inc.
Topeka, Kar.
2 We have examined the balance sheets of Kansa, Electric Power Cooperative, Inc. (KEPCo) as of December 31, 1987 and 1986, and the related statements of patronage capital (deficit) and other equities, operations and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accord-ingly, included such tests of the accounting records and auch other auditing procedures as we considered necessary in the circumstances.
In our report dated March 5, 1987, our opinion on the 1986 financial statements was qualified as being subject to the effects on the financial statements of such adjustments, if any, as might have been required had the outcome of an issue with the Kansas Corporation Commission (KCC) for recovery of depreciation, interest and property taxes on previously excluded utility plant costs been known. As explained in Note C, The KCC subsequently issued an order dated Februasf 11, 1988 which provides KEPCo vith the option to recover these costs from savings achieved from the refinancing of a certain portion of KEPCo's long-term debt in 1988, as discussed in Notes D and I.
Accordingly, our present opinion on the 1986 financial statements, as presented herein, is different from that express-ed in our previous report.
As discussed in Note B, effective February 1,1987, the KCC issued an order to KEPCo to utilize a present worth (sinking fund) depreciation method, which does not conform with generally accepted accounting principles.
If depreciation on the electric plant in service was calculated using a method in accordance~with generally accepted accounting principles, depreciation expense, net loss and patronage capital (deficit) unallocated would be increased by $4,154,563 for the year ended December 31, 1987.
As discussed in Note H, the KCC has net issued an order addressing the disposition of refunds of power costs KEPCo is to receive from a power supplier. The ultimate disposition of this refund cannot presently be determined, and accordingly, no amounts to be received and retained by KEPCo have been recorded in the 1987 financial statements. t
In our opinion, except for the effect of using the depreciation method prescribed by the KCC as discussed above and subject to the effects on the 1987 financial statements of such adjustments, if any, as might have been required had the outcome of the uncertainty referred to in the preceding paragraph been known, the financial statements referred to above present fairly the financial position of Kansas Electric Power Cooperative, Inc.
at December 31, 1987 and 1986, and the results of its operations and changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.
In our opinion, however, subject to the effects on the 1987 financial statements of such adjustments, if any, as might have been required had the outcome of the uncertainty referred to in the fourth paragraph been known, the accompanying ficancial statements present f airly the financial position of Kansas Electric Power Cooperative, Inc. at December 31, 1987 and 1986, and the results of its operations and changes in its financial position for the years then ended, in conformity with accounting practices prescribed by the Kansas Corporation Commission applied on a consistent basis.
M + 14l '
Kansas City, Missouri February 23, 1988 I
i _ _ _ _ _
BALANCE SHEETS KANSAS ELECTRIC POWER COOPERATIVE, INC.
December 31 1987 1986 ASSETS UTILI1Y PLANT--Notes B, C and D Electric plant in service
$193,768,894
$215,529,992 Construction work in progress 286,492 846,445 194,055,386 216,376,437 Less allowances for depreciation 11,186,323 9,982,356 182,869,063 206,394,081 Nuclear fuel, less accumulated amortization of $5,229,248 and
$3,720,755 at December 31, 1987 and 1986, respectively 2,466,662 2,174,390 185,335,725 208,568,471 CURRENT.*SSETS Cash and short-term investments 3,556,672 264,611 National Rural Utilities Cooperative Finance Corp. patronage capital certificate 2,316,004 2,279,549 Accounts receivable from members 6,643,889 7,996,347 Receivable from power suppliers 4,730,000 4.730,000 Futerials and supplies inventory 2,185,281 2,089,609 Other assets and prepaid expenses 637,062 312,385 20,068,908 17,672,501 OTHER ASSETS Investments in associated organizations 2,690,536 4,959,888 Deferred debits, less accumulated amortization of $377,640 at December 31, 1987--Note C 31,045,430 7,372,409 Unamortized bond issue costs 794,834 823,875 Bond fund reserve 3,969,000 3,969,000 Decommissioning fund assets 255,109 136,770 38,754,909 17,261,942
$244,159,542
$243,502,914 I
J l
1 December 31 1987 1986 LIABILITIES AND PATRONAGE CAPITAL
?
PATRONAGE CAPITAL (DEFICIT)
AND OTHER EQUITIES Membe rships S
2,800 2,800 Patronage sapital (deficit) unallocated (9,419,733)
(7,534,162)
Other equities 2,027,986 1,230,095 (7,388,947)
(6,301,267)
LONG-TERM DEBT, less current portion--
Note D 238,860,689 237,972,616 CURRENT LIABILITIES Note payable to the National Rural Utilities Cooperative Finance Corp.
174,945 Accounts payable 5,851,112 5,059,552 Accounts payable to members 5,029,000 5,029,000 Payroll and payroll related liabilities 27,630 25,222 Accrued property taxes 673,900 534,964 Accrued interest payable 230,857 143,889 Current portion of long-term debt--Note D 620,192 727,223 I
12,432,691 11,694,795 DECOMMISSIONING LIABILITY 255,109 136,770 COMMITMENTS AND CONTINGENCIES"-Notes C, E and H S244,159,542 S243,502,914 See notes to financial statements. _ _ _ _ _ - _ _ _ _ _ _ -.
STATEMENTS OF PATRO:lAGE CAPITAL (DEFICIT) AliD OTHER EQUITIES i
KANSAS ELECTRIC POWER COOPERATIVE, INC.
Patronaga Capital Member-(Deficit)
Other ships Unallocated
- Equitier, Total BALeACE AT JANUARY 1, 1986
$2,800
$(4,310,701)
$ 482,768
$(3,825,133) 1986 Net Margin
_,2,476,134)
(
(3,223,461) 747,327 (loss)
BALANCE AT DY.CEMBER 31, 1986 2,800 (7,534,162) 1,230,095 (6,301,267) 1987 Net Margin (loss)
(1,885,571) 797,891 (1,087,6801 BALANCE AT DECEHBER 31, 1987
$2,800
$( 9, '419,733) J2.027,986 f(7,388,947) i i
i 4
See notes to financial statements J >
=
STATEKENTS OF OPERATIONS KANSAS ELECTRIC POWER COOPERATIVE, INC.
~
Year Ended December 31 1987 1986 Operating revenue from member cooperatives
$68,917,263
$74,251,801 Operating expenses:
Power purchased 38,835,145 40,528,448 Nuclear fuci 1,921,626 2,726,491 Nuclear plant operations 2,426,389 2,210,426 Nuclear plant maintenance 1,643,295 1,399,400 Nuclear plant administrative and general 2,859,605 2,700,044 Administrative and general 1,729,249 1,904,739 Amortization of deferred debits 377,640 Depreciation 2,012,198 6,398,241 Interest 18,997,687 19,607,473 70,802,834 77,475,262 LOSS FROM OPERATIONS (1,885,571)
(3,223,461) 4 Other income (expense):
Interest income 797,891 747,327 Refunds from power suppliers 5,049,360 Refunds to member cooperatives (5,049,360) 797,891 747,327 i
NET LOSS
$( 1,087,68_0)
$(2,476,134) l 1
4 e
See notes te financial statements l a
..., - = -.
1 STATEMENTS OF CHANGES IN FINANCIAL POSITION KANSAS ELECTRIC POWER COOPERATIVE, INC.
Year Ended December 31 1987 1986 CASH PROVIDED BY (USED IN) OPERATIONS Net loss
$ (1,087,680)
S (2,476,134)
Charges to income not -af fecting cash:
Provision for depreciation 2,012,198 6,398,241 Amortization of nuclear fuel 1,508,493 2,320,277 Amortization of deferred debits 377,640 Amortization of bond issue costs 29,041 28,410 Changes in components of working capital affecting operations 1,777,036 33,111,974 Decrease in investments in associated organizations 2,232,897 1,220,596 Depreciation charged to deferred debits 487,359 1,027,129 Increase in deferred debits (957,887)
(3,941,494)
Increase in decommissioning fund assets (118,339)
(110,271)
Increase in decommissioning liability 118,339 110,271 TOTAL PROVIDED BY OPERATIONS 6,379,097 37,688,999 CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Repayment of long-term debt (691,958)
(37,993,388)
Proceeds from issuance of long-term debt 1,473,000 2,042,000 (49,549)
Increase in unamortized bond issue costs 781,042 (36,000,937) y CASH USED IN INVESTING ACTIVITIES Net additions to utility plant (2,067,313)
(1,073,174)
Increase in nuclear fuel (1,800,765)
(1,595,123)
(3,868,078)
(2,668,291)
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 3,292,061 (980,235)
]
Cash and short-term investments at beginning
)
of year 264,611 1,244,846 i
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR S 3,556,672 264,611 1
i I
i STATEMENTS OF CHANGES IN FINANCIAL POSITION--CONT'D 4
i Year Ended December 31
_j 1987 1986 CHANGES IN C0KPONENTS OF WORKING CAPITAL i
AFFECTING OPERATIONS Change provided (used) cash:
Short-term investments restricted i
-S 37,100,000 for payment of long-term debt S
Accounts receivable from members 1,352,458 81,003 (4,033,752)
Receivable from power suppliers Materials and supplies in entory (95,672)
(84,076)
Other assets and prepaid expenses (324,677)
(80,788)
Note payable to National Rural Utilities Cooperative Finance Corp.
(174,945)
(2,855,4;3)
Accounts payable 791,560 (627,592) 3,545,382 Accounts payable to members Payroll and payroll related liabili.es 2,408 5,390 i
Accrued property taxes 138,936 117,722 Accrued interest payable 86,968 (55,882)
CASH PROVIDED BY CHANGES IN COMPONENTS OF WORKING CAPITAL 1,777,036 S 33,111,974 i
I t
1 1
See notes to financial statements a
NOTES TO FINANCIAL STATEHENTS KANSAS ELECTRIC POWER COOPERATIVE, INC.
December 31, 1987 NOTE A--
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Kansas Electric Power Cooperative, Inc. (KEPCo) maintains its accounting records in accordance wi.th the Feletal Energy Regulatory Commission's chart of accounts as adopted by the Rural Electrification Administration (REA). The more significant accounting policies are described below.
Utility Plant:
Utility plant (see Note B) is stated at cost. Provision for depreciation is computed on the straight-line method at the following annual composite rates:
Transportation Equipment 25 to 33%
Office Furniture and Fixtures 20%
Leasehold Improvements 20%
Provision for depreciation for electric plant in service for 1986 and January 1987 was computed over the straight-line method at a 3.44% annual l
composite rate.
Ef fective February 1,1987, the provision for depreciation annual composite rate for electric plant in servire was 1.0846% and will increase each year over the next 27 years (seo Note B).
Depreciation for 1987 and 1986 amounted to $2,499,557 and $7,425,370, respectively, of which $2,012,198 and $6,398,241, respectively, was charged to depreciation expense with the remaining amount being charged to various deferred debits (see Note C).
Leases which meet the criteria of the Financial Accounting Standards Board (FASB) Statement No. 13 are accounted for as capital leases. Amortization of equipment under capital leases is computed on tb"- straight-line method over the lease period and is included in depreciation in the financial statements. Amortization expense for 1987 and 1986 *aconted to $27,283 and $25,009, respectively. Rentals paid under opstating leases are charged to operations as incurred.
Nuclear Feel: The cost of nuclear fuel, including a provision for the disposal of spent fuel, is being amortized to fuel expecen. based oa core burn-up.
The owners of the Wolf Creek Nuclear Plant have entered into 3.cntraer with the Department of Energy that provides for the permanent disposal of spent fuel.
Investments in Associated Organizations:
Investments in associated organ-izations consist principally of patronage capital certificates and subor-dinated term certificatas of the National Rural Utilities Cooperative Finance Corp. (NRUCFC). NRUCFC patronage capital certificates maturing within a yea *- of the balance sheet date are reflected as a current asset. - - - _ _ _ _ _ _
.a
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NOTES TO FINANCIAL STATEt1ENTS--CONT'D l
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NOTE A--
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES--CONT'D Short-Term Investments:
Short-term investments consist of NRUCFC commer-cial paper and are stated at cost which is approximately equal to market.
Receivable From Power Suppliers:
Receivable from power suppliers consists of refunds from power suppliers for retroactive rate and fuel adjustments.
~
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A corresponding payable to member cooperatives is included in accounts payable to members.
i Materials and Supplies Inventory:
Materials and supplies inventory for the Wolf Creek Nuclear Plant (see Note B) is stated at average cost.
Unamortized Bond Issue Costs:
Unamortized bond issue costs related to the issuance of the floating / fixed rate pollution control revenue bonds (see Note D) are being amortized over the estimated period the debt is expected to be outstanding.
Decommissioning Fund Assets / Decommissioning Liability:
Decommissioning i
fund assets and the corresponding decommissioning liability represent i
funds collected from members, pursuant to a rste order, to be used for the r
decommissioning of the Wolf Creek Nuclear Pla1t (Wolf Creek).
Refunds from Power Suppliers / Refunds to Member Caoperatives:
Refunds from power suppliers for retroactive rate and fuel adjussments are received by KEPCo and are remitted to member cooperatives in accordance with KCC I
guidelines.
1 Reclassifications:
Certain amounts ha re been reclassified on the 1986 financial statements to conform with the 1987 presentation.
NOTE B--WOLF CREEK NUCLEAR PLANT KEPCo owns six percent of the Wolf Creek Nuclear Plant, near Burlington, Kansas. The remainder is owned by the Kansas City Power and Light Company (KCPL) and Kansas Gas & Electric Company (KGE). KEPCo is entitled to a i
proportionate share of the demand and energy from Wolf Creek which is used to supply a portion of KEPCo's members' requirements. KEPCo is billed for 6% of the operations, maintenance, and administrative and general costs related to Wolf Creek.
l The KCC declared Wolf Creek commercially operable on September 3,1985.
KEPCo's total investment includes interest and administrative costs during construction, and first project developmental costs incurred prior to j
January 1, 1982.
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NOTES TO FINANCIAL STATEMENTS--CONT'D NOTE B--WOLF CREEK NUCLEAR PLANT--CONT'D Ef fective February 1,1987, the KCC issued an order to KEPCo to utilize a present worth (sinking fund) depreciation method which does not conform with generally accepted accounting principles.
If depreclation on electric plant in service was calculated using a method in accordance with generally accepted accounting principles, depreciation expense and KEPCo's net loss and patronage capital (deficit) unallocated would be increased by
$4,154,568 for the year ended December 31, 1987.
NOTE C--DEFERRED DEBITS Reimbursable Construction Costs Reimbursable construction costs amounting to $1,451,976 invoiced by KEPCo to KCPL and KGE previously included as part of KEPCo's investment in Wolf Creek along with related accumulated depreciation amounting to $70,429 were reclassified to deferred debits by management pursuant to a KCC rate order dated February 1,1987 and are reflected se such in the accompanying 1987 balance sheet.
Depreciation and interest :osts associated with the invoiced amounts are also included in deferred lebits.
Ditallowed Costs Ef fective October 1,1985, the KCC issued a rate arder relating to KEPCo's investment in Folf Creek which disallowed $22,816,028 of LEPCo's invest-ment in Wolf Creek. A subsequent rate or ter, ef f active 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 27.736 year period.
Annual amortization of such costs will increase ever the recovery period.
In connection with this rate order, these costs and related accumulated depreciation of $1,106,801, were reclassified from r!.ectric plant in service to deferred debits.
Utility Plant Costs Certain utility plant costs were not included in KEPCo's 1985 rate request because the KCC required KEPCo to file the rate request based on projected totat utility plant costs. The February 1, 1987 rate order included these costs in KEPCo'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 debits in the accompanying balance sheets.
d NOTES TO FINANCIAL STATEMENTS--CONT'D f
i NOTE C--DEFERRED DEBITS--CONT'D The KCC issued a rate order dated February 11, 1988 which provides KEPCo with the' option to recover these costs from savings achieved from the refinancing of a certain portion of KEPCo's long-term debt in 1988. KEPCo has not made a decision whether to exercise this option or to request that the KCC allow them to recover these costs in future rate filings.
Should the savings from refinancing not be used for recovery of the above mentioned costs, and KEPCo's request for recovery through future rates, if made, is not granted, the amounts included in deferred debits will be charged to expense.
It is management's expectation that KEPCo will be able to recover such costs.
Ravenues and Expenses for the Period September 3, 1985 through September 30, 1985 Although the Wolf Creek Nuclear Plant began commercial operations on September 3, 1985, the KCC ordered KEPCo to accumulate all revenues and expenses related to the operation of 1
Wolf Creek for the period from September 3, 1985 through September 30, 1985 in a deferred
]
debit.
These net expenses amounted to $1,884,003 and are included in deferred debits in the accompanying balance sheets at December 31, 1987 and 1986. The KCC issued an order on February 1, 1987 which will allow KEPCo to recover these costs over a ten year period.
Annual amortization of such costs will increase over the recovery period.
The following table summarizes the above described deferred debits as of December 31, 1987 and 1986 and related activity for the years then endedt Revenues and Expenses j
for the Period 1
l September 3, 1985 i
Reimbursable Utility through l
Construction Disallowed Plant September 30,
{
Costs Costs
__ Costs 1985 Other JANUARY 1,1986 S
S1 074,744 S 472,168
$1,844,003 3
Adcitions 2,920,264 1,017,878 3,352 BALANCE AT
{
DECEMBER 31, 1986 3,995,008 1,490,046
$1,884,003 3,352 Additions 186,461 276,686 381,288 113,452 Amortization
( 2.* S,328 )
(119,312)
Transfer from utility plant at net book i
value 1,381,547 21,711,227 I
BALANCE AT DECEMBER 31, 1987 S1,568,008
$25,724,593 S1,871,334 S1,764,691 S116,804 r
L I l
NOTES TO FINANCIAL STATEHENTS--CONT'D NOTE C--DEFERRED DEBITS--CONT'D FASB Statement No. 92, "Regulated Enterprises--Accounting for Phase-in Plans," was issued in December 1987 and is effective for fiscal years beginning af ter December 15, 1987.
It requires that allowable costs deferred for future recovery related to plants completed prior to January 1, 1988 be recovered within a ten year period from date of initial deferral. $27,489,284 of the deferred debits do not currently meet this criteria and the costs will be required to be written off in 1988 for KEFCo to be in conformity with generally accepted accounting principles, unless an amended rate order is received which meets this criteria or unless the FASB amends Statement No. 92.
NOTE D--LONG TERM DEBT Long term debts consists of:
December 31 1987 1986 Mortgage notes payable to the Federal Financing Bank (FFB) at rates varying from 7.316% to 11.486%, payable in quarterly installments (interest only through 1988) through 2018.
Utility plant assets with a cost of $172,854,014 are pledged as collateral.
Subsequent to December 31, 1987, KEPCo secured 9
refinancing of certain of its FFB loans (see Note I).
$162,900,000
$162,900,000 Mortgage notes payable to the Federal Financing Bank at rates varying from 7.784% to 11.932%, principal and l
interest payable in quarterly instal-l 1ments through 2015. Utility plant i
assets with a cost of $172,854,014 are pledged as collateral. Subsequent to December 31, 1987, KEPCo secured refinancing of certain of its FFB loans (see Note 1).
32,829,225 31,619,097 Floating / fixed rate pollution control revenue bonds, City of Burlington, Kansas, Pooled Series 1985C, variable interest rate, principal payments commencing in 1987 and continuing annually through 2015. Utility plant assets with a cost of
$44,100,000 are pledged as collateral.
43,700,000 44,100,000 ______J
NOTES TO FINANCIAL STATEMENTS--CONT'D NOTE D--LONG TERM DEBT--CONT'D Capital lease obligation 51,656 80,742 239,480,881 238,699,839 Less current portion 620,192 727,223
$238,860,089
$237,972,616 Aggregate maturities of mortgage notes payable to the Federal Financing Bank and floating / fixed rate pollution control bonds as of December 31, 1987 are as follows:
Year Amount 1988 590,881 1989 1,732,566 1990 1,852,276 1991 1,982,742 1992 2,124,926 Thereafter to 2015 231,145,834
$239,429,225 Leased computer equipment with a cost of $136,412 and accumulated amorti-i zation of $95,488 and $43,197 at December 31, 1987 and 1986, respectively, has been capitalized in accordance with FASB Statement No. 13 and is included in electric plant in service.
Future minimum payments, by year and in the aggregate, under the capital lease obligation are as follows:
Year Ending December 31 l
l 1988
$41,255 1989 17,190 Total minimum lease paycents 58,445 Amount representing interest 6,789 Present value of net minimum lease paymerts 51,656 Less current portion 29,311
$22,345 NOTES TO FINANCIAL STATEMENTS--CONT'D NOTE D--LONG TERM DEBT--CONT'D At December 31, 1987, KEPCo has an approved FFB loan guaranteed by REA with a balance of $162,900,000. REA has also guaranteed additional loans of $30,000,000 and $10,000,000 with outstanding principal at December 31, 1987 amounting to $32,829,225. KEPCo has the option on the $162,900,000 in FFB mortgage notes to elect short-term maturity dates of not less than two years nor more than seven years after the date of the initial advance or may elect a long-term maturity date of 34 years af ter the end of the calendar year in which the initial advance was made. On the maturity of a short-term advance, KEPCo may refinance the advance with another short-term advance with a maturity date of not greater than seven years f rom the date of the original advance or may elect to refinance with a long-term maturity date of 34 years after the end of the calendar year in which the initial advance was made. At December 31, 1987, KEPCo had no advances with short-term maturity dates between January 1, 1988 and December 31, 1988.
KEPCo has the option on the remaining $30,000,000 and $10,000,000 in FFB mortgage notes to elect short-term maturity dates of two years or a long-term maturity date of December 31, 2015.
On the maturity of a short-term advance, KEPCo may refinance the advance with another short-term advance with a maturiti date of two years or may elect the long-term maturity dates of December 31, 2015.
At December 31, 1987, KEPCo had no advances with short-term maturity dates between January 1,1988 and December 31, 1988.
During 1987 and 1986, interest incurred totaled approximately $19,356,000 and $22,328,000, respectively, of which $18,997,687 and $19,607,473 respectively, was charged to interest expense and the remaining amount was charged to various deferred debits (see Note C).
NOTE E--OPERATING LEASE l
KEPCO leases office space under a non-cancellable operating lease. The related rental expense for 1987 and 1986 was $61,250 and $60,786, j
respectively.
j 1
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NOTES TO FINANCIAL STATEMENTS--CONT'D i
I NOTE E--OPERATING LEASE--CONT'D i
j Future minimum lease payments for space currently leased at December 31, i
1987 are as follows:
Year Amount i
1988
$61,250 i
1989 65,448 l
1990 65,448 1991 65,448 1992 65,448 The minimum lease payments can be increased tc the extent that taxes and insurance paid by the lessor exceed 1987 levels.
NOTE F--PENSION PLAN KEPCo participates in the National Rural Electric Cooperativa Association (NRECA) retirement and security program for its employees.
All employees 1.
of members of NRECA are eligible to participate in the program. KEPCo l
makes annual contributions to the plan equal to the amounts accrued f or pension costs.
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's pension cost for the plan for the years ended December 31, 1987 and 1986 was $16,082 and l
$39,929, respectively.
l NOTE G--INCOME TAXES At December 31, 1987, KEPCo had net operating loss carryforwards totalling approximately $71,231,000 available to reduce future taxable income and l
investment tax credit carryforwards of $7,735,089 as follows:
Net operating Investment loss tax credit Available carryforward carryforward Through
]
1996
$ 8,199,000 12,410,000 203 1997 17,124,000 896 1998 21,467,000 1,210 1999 4,443,000 7,732,780 2000 2001 3,418,000 2002 4.170,000
$/1,231,000
$7,735,089 -
NOTES TO FINANCIAL STATEMENTS--CONT'D NOTE G--INCOME TAXES--CONT'D The difference between the net operating loss shown in the accompanying financial statements and the nec operating losses for tax purposes in 1987 and 1986 is due primarily to operating expenses deferred for financial statement purposes (see Note C) and expensed for tax purposes and timing differences related to depreciation expense.
NOTE H--CONTINGENCIES In connection with the purchase of KEPCo's six percent interest in Wolf Creek, KGE and KCPL have filed lawsuits against KEPCo for approximately
$3,700,000 of KEPCo's capital credits f rom CFC.
KEPCo's management believes there is no basis to the claims, however, should KGE and KCPL prevail, any amounts paid will be added to KEPCo's investment in Wolf Creek.
As a result of settlement of litigation during 1987 involving Kansas Power and Light Company (KPL), KEPCo is entitled to refunds of power costs attributable to retroactive rate and fuel adjustments. While receipt of l
such amounts in the future is probable, the actual amount of refunds and I
the amount of refunds to be retained by KEPCo are presently not deter-l minable. Accordingly, no amounts to be received and retained by KEPCo have been recorded in the 1987 financial statements. The KCC has not issued an order addressing the disposition of the refunds due f rom KPL.
As such, the ultimate outcome of the issue cannot presently be deter-mined.
KEPCo is a defendant in various lawsuits which are in various stages of investigation and litigation.
In the opinion of management and KEPCo's legal counsel, these lawsuits are of doubtful merit and will be settled in KEPCo's favor.
NOTE I-SUBSEQUENT EVENT Subsequent to December 31, 1987 KEPCo refinanced approximately
$62,500,000 of FFB loans with a variable interest, short-ters loan from the National Rural Utilities Cooperation Finance Corp. This loan is scheduled to be refinanced with long-term, fixed rate debt certificates, which will be guaranteed by REA. No gain or loss will result from such refinancing. i
Ernst&Whinney 20 ce center square 1100 Main Street Kansas City, Missouri 64105 i
t 816/474 8050 i
I l
Kansas Electric Power Cooperative, Inc.
Topeka, Kansas i
The audited financial statements of Kansas Electric Power Cooperative, i
inc. and our report thereon are presented in the preceding section of this i
report. The information presented hereinaf ter is for purposes of addi-
?
tional analysir end is not required for a fair presentation of the finan-cial position, re M ts of operations, or changes in financial position of
~
Kansas Electric Paver Cooperative, Inc.
Such information has not been subjected to the f.cditing procedures applied in the examination of the basic financial e, tat-ments, and, accordingly, we er. press no opinion on e
1 it.
1
-.W N '
Kansas C1.f. Missouri February 23, 1988 j
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WHOLESALE POWER DATA (UNAUDITED)
KANSAS ELECTRIC POWER COOPERATIVE, INC.
Year Ended December 31, 1987 SALES Noncoincidental peak demand 318,426 kW Total energy 1,231,398,969 kWh REVENUES Total electric sales
$68,917,263 Average per kWh 55.97 Mills OPERATING EXPENSES Total purchased power costs (Includes transmission)
$38,835,145 Nuclear fuel expense, nuclear plant operations and naclear plant maintenance costs 8,850.915
$47,686,060 Average per kWh 38.73 Mills Total administrative and general, depreciation and interest costs
$23.116,774 Average per kWh 18.77 Mills LOSS FROM OPERATIONS
$(1,885,571)
Average per kWh (1.53) Mills i j
__