ML20197J424
| ML20197J424 | |
| Person / Time | |
|---|---|
| Site: | Wolf Creek  |
| Issue date: | 05/12/1986 |
| From: | Koester G KANSAS GAS & ELECTRIC CO. |
| To: | Harold Denton Office of Nuclear Reactor Regulation |
| Shared Package | |
| ML20197J428 | List: |
| References | |
| KMLNRC-86-087, KMLNRC-86-87, NUDOCS 8605200037 | |
| Download: ML20197J424 (42) | |
Text
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KANSAS GAS AND ELECTRIC COMPANY THE ELECTF4C CCPAPANY eCf pets :D N T N LEA 4 Mr. Harold R. Denton, Director Office of Nuclear Regulation U.S. Nuclear Regulatory Comnission Washington, D.C.
20555 KMLNRC 86-087 Re:
Docket No. STN 50-482 Subj:
Transmittal of 1985 Annual Reports
Dear Mr. Denton:
Kansas Gas and Electric Cmpany is transmitting herewith one copy each of the Kansas Gas and Electric Company Report to Stockholders 1985, Kansas City Power & Light Company 1985 Annual Report and Kansas Electric Power Cooperative, Inc. Audited Financial Statement for 1985.
This information is subnitted in accordance with 10 CFR 50.71(b).
If there are any questions concerning this subnittal please contact me or Mr.
O.
L.
Maynard of my staff.
Yours very truly, Glenn L. Koester Vice President - Nuclear GLK:see Attachments cc: PO'Connor (2)
JCumnins 8605200037 860512 PDR ADOCK 05000482 0
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Audited Financial Statements KANSAS ELECTRIC POWER COOPERATIVE, INC.
December 31, 1985 1
Auditors' Report Balance Sheets 2
Statements of Patronage Capital (Defic.it) and Other Equities 4
Statements of Operations 5
Statements of Changes in Financial Position.
6 Notes to Financial Statements.
8
Ernst&Whinney 2000 city center square 1100 Main Street Kansas City, Missouri 64105 816/474-8050 Board of Trustees Kansas Electric Power Cooperative, Inc.
Topeka, Kansas We have examined the balance sheets of Kansas Electric Power Cooperative, Inc. as of December 31,1985 and 1984, 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, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
As discussed in Note C, the Kansas Corporation Commission issued a rate order to Kansas Electric Power Cooperative, Inc. which dissallowed a portion of its investment in the Wolf Creek Nuclear Plant. Kansas Electric Power Cooperative, Inc. has been ordered by the Kansas Corporation Commission to present a plan for financial treatment of their disallowed investment in the Wolf Creek Nuclear Plant.
Presentation of the plan has been delayed pending the resolution of certain litigation as described in Note C.
The ultimate outcome of this issue cannot presently be determined.
In our opinion, subj ec t to the effects on the 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 finan-cial statements referred to above present fairly the financial position of Kansas Electric Power Cooperative, Inc. at December 31, 1985 and 1984, 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.
Mv y
1 l
Kansas City, Missouri March 10, 1986 i
BALANCE SHEETS KANSAS ELECTRIC POWER COOPERATIVE, INC, December 31 1985 1984 ASSETS UTILITY PLANT Electric plant in service 310,863 S
272,036 Construction completed not classified--Notes B and C 216,414,864 Construction work in progress 190,433,724 216,725,727 190,705,760 Less allowances for depreciation 2,555,428 71,242 214,170,299 190,634,518 Nuclear fuel, less amortization of
$1,400,478 at December 31, 1985 2,899,544 3,686,186 217,069,843 194,320,704 CURRENT ASSETS Cash and short-term investments (including amounts restricted for construction of $490,187 at 1984) 1,244,846 1,601,921 Short term investments restricted for l
payment of long-term debt--Note E 37,100,000 l
National Rural Utilities Cooperative j
Finance Corp. patronage capital certificate 1,228,416 Accounts receivable from members 8,077,350 5,757,442 Receivable from power suppliers 696,248 3,385,412 tbterials and supplies inventory 581,511 Other assets and prepaid expenses 231,597 12,679 49,159,968 10,757,454 OTHER ASSETS Investments in associated organizations 7,231,617 6,249,108 Deferred debits--Notes C and D 3,430,915 27,119 Unamortized bond issue costs 802,736 Bond fund reserre 3,969,000 Decommissioning fund assets 26,499 15,460,767 6,276,227 S281,690,578
$211,354,385 _ _ _ _
December 31 1985 1984 LIABILITIES AND PATRONAGE CAPITAL PATRONAGE CAPITAL (DEFICIT)
AND OTHER EQUITIES Memberships S
2,800 S
2,800 Patronage capital (deficit)
(4,310,701)
(2,008,329)
Other equities 482,768 157,938 (3,825,133)
(1,847,591)
LONG TERM DEBT, less current portion--
Note E 236,669,867 201,370,290 CURRENT LIABILITIES Note payable to the National Rural Utilities Cooperative Finance Corp.
3,030,378 Accounts payable 5,687,144 6,898,406 Accounts payable to members--Note I 1,483,618 3,986,263 Payroll and payroll related liabilities 19,832 18,164 Accrued property taxes 417,242 337,261 Accrued interest payable 199,771 13,665 Current portion of long-term debt--Note E 37,981,360 577,927 48,819,345 11,831,686 DECOMMISSIONING LIABILITY 26,499 COMMITMENTS AND CONTINGENCIES--Notes B, C, F and I l
S281,690,578 S211,354,385 See notes to financial statements...
STATEMENTS OF PATRONAGE CAPITAL (DEFICIT) AND OTHER EQUITIES KANSAS ELECTRIC POWER COOPERATIVE, INC.
Patronage Capital Member-(Deficit)
Other ships Unallocated Equities Total Balance at January 1, 1984
$2,800
$ (930,212)
$ 62,991
$ (864,421) 1984 Net Margin (loss)
(1,078,117) 94,947 (983,170)
Balance at December 31, 1984 2,800 (2,008,329) 157,938 (1,847,591) 1985 Net Margin c
(loss)
(2,302,372) 324,830 (1,977,542)
Balance at December 31, 1985
$2,800
$(4,310,701),$482,768
$(3,825,133)
See notes to financial statements l
l l
STATEMENTS OF OPERATIONS KANSAS ELECTRIC POWER COOPERATIVE, INC.
Year Ended December 31 1985 1984 Operating revenue from member cooperatives
$61,708,116
$64,980,587 Operating expenses:
Power purchased 51,350,689 63,888,314 Nuclear fuel 945,727 Nuclear plant operations 1,344,697 Nuclear plant maintenance 180,329 Nuclear plant administrative and general 503,169 Administrative and general 2,102,725 1,745,480 Depreciation and amortization 1,647,673 30,799 Interest 5,935,479 394,111 64,010,488 66,058,704 LOSS FROM OPERATIONS (2,302,372)
(1,078,117)
Other income (expense):
J Interest income 324,830 94,947 Refunds from power suppliers 2,641,494 7,843,213 Refunds to member cooperatives (2,641,494)
(7,843,213) 324,830 94,947 NET LOSS S(1,977,542)
S (983,170)
See notes to financial statements
. i i
STATEMENTS OF CHANGES IN FINANCIAL POSITION KANSAS ELECTRIC POWER COOPERATIVE, INC.
Year Ended December 31 1985 1984 SOURCES OF WORKING CAPITAL Net loss
$(1,977,542) $ (983,170)
Charges to income not affecting working capital:
Depreciation and amortization 1,647,673 30,799 Amortization of nuclear fuel 809,254 TOTAL PROVIDED (USED) FROM OPERATIONS 479,385 (952,371)
Proceeds from long-term debt 72,796,000 53,891,412 Depreciation charged to deferred debits 846,819 Amortization of nuclear fuel charged to deferred debits and construction work in progress 591,224 133,095 Decrease in deferred debits Increase in decommissioning liability 26,499 Other 74,739,927 53,072,136 APPLICATION OF WORKING CAPITAL Increase in investments in associated 982,509 292,684 Net additions in utility plant 26,030,273 47,709,227 Reduction of long-term debt 37,496,423 588,403 Increase in nuclear fuel 613,836 922,584 Increase in deferred debits 3,403,796 Increase in unamortized bond issue costs 802,736 Increase in bond fund reserve 3,969,000 Increase in decommissioning fund assets 26,499 73,325,072 49,512,898 INCREASE IN WORKING CAPITAL
$ 1,414,855 S 3,559,238 CHANGES IN COMPONEN'1S OF WORKING CAPITAL Increase (decrease) in current assets:
Cash and short-term investment S (357,075) $ (151,123)
Short-term investments restricted for payment of long-term debt 37,100,000 National Rural Utilities Cooperative Finance Corp. patronage capital certificate 1,228,416 Accounts receivable from members 2,319,908 (492,080)
Receivable from power suppliers (2,689,164) 3,385,412 Material and supplies inventory 581,511 Other assets and prepaid expenses 218,918 6,218 38,402,514 2,748,427
STATEMENTS OF CHANGES IN FINANCIAL POSITION--CONT'D Year Ended December 31 1985 1984 CHANGES IN COMPONENTS OF WORKING CAPITAL Increase (decrease) in current liabilities Note payable to the National Rural Utilities Cooperative Finance Corp.
3,030,378 Accounts payable (1,211,262)
(89,604)
Accounts payable to members (2,502,645) 3,385,412 Payroll and payroll related liabilities 1,668 (4,208)
Accrued property taxes 79,981 53,018 Accrued interest payable 186,106 (4,733,356)
Current portion of long-term debt 37,403,433 577,927 36,987,659 (810,811)
INCREASE IN WORKING CAPITAL
$ 1,414,855
$ 3,559,238 See notes to financial statements i
NOTES TO FINANCIAL STATEMENTS KANSAS ELECTRIC POWER COOPERATIVE, INC.
December 31, 1985 NOTE A--SUM!!ARY OF SIGNIFICANT ACCOUNTING POLICIES Kansas Electric Power Cooperative, Inc. (KEPCo) maintains its accounting records in accordance with the Federal Energy Regulatory Commission's (FERC) chart of accounts is adopted by the Rural Electrification Admini-stration (REA).
The more significant accounting policies are deceribed 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:
Construction Completed not Classified 3.44%
Transportation Equipment 25 to 33%
office Furniture and Fixtures 10%
Leasehold Improvements 20%
Depreciation and lease amortization for 1985 and 1984 amounted to
$2,494,492 and $14,885, respectively, of which $1,647,673 and $14,885, respectively, was charged to depreciation and amortization expense with the remaining amount being charged to various deferred debits, member clearing accounts and construction in progress.
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 the straight-line method over the lease period.
Amortization expense for 1985 and 1984 amounted to S27,283 and $15,914, respectively.
Rentals paid under operating leases are charged to operations as incurred.
Nuclear Fuel:
The cost of nuclear fuel (see Note B), including a provi-sion for the disposal of spent fuel, is being amortized to fuel expense based on core burn-up.
During 1985, the total provision amounted to
$1,579,121 of which $945,727 was charged to nuclear fuel expense and the remaining amount was charged to deferred debits or capitalized as part of the cost of capital assets under construction during the testing period.
The owners of the Wolf Creek Nuclear Plant have entered into a contract 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 certificates of the National Rural Utilities Cooperative Finance Corp. (NRUCFC). NRUCFC patronage capital certificates maturing within a year of the balance sheet date are reflected as a current asset.
Short-Term Investments:
Short-term investments consist of NRUCFC commercial paper and are stated at cost which is approximately equal to market.
_S_
NOTES TO FINANCIAL STATEMENTS--CONT'D NOTE A--
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES--CONT'D l
Receivable From Power Suppliers:
Receivable from power suppliers consists of refunds f rom Kansas Gas and Electric Cumpany (KGE), Kansas Power and Light Company (KPL) and Centel Corporation for retroactive rate and fuel adjustments. A corresponding payable to member cooperatives is included in accounts payable to members.
Materials and Supplies Inventory: Materials and supplies inventory for the W lf Creek Nuclear Plant (see Note B) are stated at average cost.
o Unamortized Bond Issue Costs:
Unamortized bond issue costs related to the issuance of the floating / fixed rate pollution control revenue bonds (see Note E) are being amortized over the estimated period the debt is expected to be outstanding.
Decommissioning fund assets / decommissioning liability:
Decommissioning fund assets and the corresponding decommissioning liability represent funds collected from members, pursuant to a rate order, to be used for the decommissioning of the Wolf Creek Nuclear Plant.
Refunds from Power Suppliers / Refunds to Member Cooperatives:
Refunds fram power suppliers for retroactive rate and fuel adjustments are receive l by KEPCo and are remitt to member cooperatives in accordance with Kansas Corpori ton Commission (KCC) guidelines.
Reclassifications:
Certain amounts in the 1984 financial statements have been reclassified to conform with the 1985 presentation.
NOTE B--WOLF CREEK NUCLEAR PLANT KEPCo owns six percent of the Wolf Creek Nuclear Plant (Wolf Creek), near Burlington, Kansas. The remainder is owned by the Kansas City Power and Light Company (KCPL) and KGE, the current operating agent. KEPCo is entitled to a 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 by KGE for 6% of the operations, maintenance and administrative and general costs related to Wolf Creek.
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 January 1, 1982. KEPCo's investment in Wolf Creek, including nuclear fuel, at December 31, 1985, was $219,314,408, including approximately
$1,452,000 that management invoiced to KCPL and KGE for reimbursable construction costs. Amounts reimbursed will be credited to plant-in-service when received. Fbnagement now estimates that KEPCo's total investment in Wolf Creek will be approximately S220,000,000. -
e NOTES TO FINANCIAL STATEMENTS--CONT' D NOTE C--DISALLOWED COSTS Effective October 1, 1985, the KCC issued a rate order relating to KEPCo's investment in Wolf Creek. The rate order disallowed approximately S22,033,000 of the $209,000,000 of KEPCo's investment in Wolf Creek included in the rate request and $2,600,000 of other costs, and disallowed
$6,400,000 of the $95,600,000 in annual revenue requested.
In the rate order, the KCC recognized that permanent disallowment of this portion of KEPCo's investment would seriously impact the finances of KEPCo and its members, and it ordered KEPCo to present a plan for financial treatment of the disallowed investment.
KEPCo filed an application for rehearing with the KCC on the issue of disallowed costs. The application for rehearing was denied and KEPCo subsequently filed an appeal with the Kansas Supreme Court and the Kansas Supreme Court agreed to hear KEPCo's appeal.
Consequently, KEPCo has not presented its plan to the KCC.
If the Supreme Court allows inclusion of the S22,033,000 in KEPCo's rate, the provision in the KCC order relating to the presentation of a plan will no longer be applicable.
If the Supreme Court upholds the KCC Order, a plan for j
recovering the disallowed costs will be subsequently presented to the KCC.
KEPCo has depreciated the disallowed portion of its investment in Wolf Creek. The depreciation expense of $249,185 and the interest costs related to the disallowed portion of $825,559 for the period of September 3, 1985 through December 31, 1985 are included in deferred debits on the accompanying balance sheet.
If the KCC does not permit inclusion of
$22,033,000 of the investment in Wolf Creek, the net carrying value of the disallowed portion ($21,783,815) and the depreciation and interest costs included in deferred debits will be charged to expense. However, it is management's expectation that such amounts will be recovered through the rate making process.
It is management's opinion that present rates are adequate to generate cash flow sufficient to meet its needs through 1986. However, the present rates are not sufficient to allow KEPCo to recover its investment in Wolf Creek over the life of the facility.
l NOTE D--DEFERRED DEBITS Deferred debits include certain operating expenses incurred by KEPCo during the period of Saptember 3, 1985 through December 31, 1985 related to the operation of the Wolf Creek Nuclear Plant including interest and depreciation of $1,074,744 as explained in Note C.
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 Wolf Creek for the period from September 3,1985 through September 30, 1985 in a deferred debit.
These net expenses amounted to S1,884,003.
It is management's expectation that such amounts will be recovered through the rate making process. - _ _ _ _
NOTES TO FINANCIAL STATEMENTS--CONT'D NOTE D--DEFERRED DEBITS--CONT'D Certain utility plant costs were not included in KEPCo's rate request, which was based on projected utility plant costs. KEPCo anticipates filing an additional rate request in 1986 which will include KEPCo's Wolf Creek investment not included in its original request and will cover more current estimates of other costs.
Any changes to KEPCo's rates are subject to KCC approval. The related depreciation and interest on utility plant costs for the period of September 3, 1985 through December 31, 1985 amounted to $472,168, and is included in deferred debits.
NOTE E--LONG TERM DEBT Long term debts consists of:
December 31 1985 1984 Mortgage notes payable to the Federal Financing Bank at rates varying from 8.044% to 13.197%, payable in quarterly installments (interest only through 1988) through 2018. Utility plant assets with a cost of approximately
$172,314,864 are pledged as collateral.
S200,000,000 S200,000,000 Mortgage notes payable to the Federal Financing Bank at rates varying from 10.122% to 11.932%, principal and interest payable in quarterly instal-1ments through 2015. Utility plant assets with a cost of approximately
$172,314,864 are pledged as collateral.
29,888,632 1,265,000 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.
44,100,000 Advances from member and non-member cooperatives 557,281 557,281 Capital lease obligation 105,314 125,936 274,651,277 201,948,217 Less current portion 37,981,360 577,927
$236,669,867 S201,370,290.__
NOTES TO FINANCIAL STATEHENTS--CONT'D NOTE E--LONG TERM DEBT--CONT'D Aggregate maturities of mortgage notes payable to the Federal Financing Bank (FFB) and floating / fixed rate pollution control bonds as of December 31, 1905 are as follows:
Yant Amount 1986
$ 37,399,479 1987 711,318 1988 724,477 1989 1,154,768 1990 1,401,577 Thereafter 232,597,013 S273,988,632 The proceeds from the floating / fixed rate pollution control revenue bonds which are unconditionally guaranteed by the National Rural Utilities Cooperative Finance Corporation (CFC), were used for the following purposes:
Payment on mortgage notes payable to FFB which matured a January 3, 1786 S 37,100,000 Fund a debt service reserve fund 3,969,000 Purchase CFC subordinated term certificates 2,205,000 Payment of bond issue costs 826,000 S 44,100,000 Leased computer equi pment with a cost of $136,412 and accumulated amortiza-tion of $43,197 and $15,914 at December 31,1985 and 1984, 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:
i Year Ending December 31 1986 S 41,255 1987 41,255 l
1988 41,255 1989 17,190 1990 Total minimum lease payments
$140,955 Amount representing interest 35,641 Present value of net minimum lease payments
$105,314 Less current portion 24,600
$ 80,714 _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _
~~
/
NOTES TO FINANCIAL STATEMENTS--CONT'D i
NOTE E--LONG TERM DEBT--CONT'D At December 31, 1985, KEPCo has an approved FFB loan guaranted by REA in the amount of $200.000,000.
REA has also guaranteed additional loans of
$30,000,000 and $10,000,000. KEPCo has the option on the initial
$200,000,000 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 4
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 s,hort-term advance, KEPCo may refinance the advance with
~.
another short-term advance with a maturity date of not greater than seven years from 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, 1985, KEPCo had
$152,838,500 of advances with short-term maturity dates between January 1, laS6 and December 31, 1986. KEPCo intends to refinance $115,738,500 of these advances as described above or under other terms and conditions aphroved by.REA.
Accordingly, these advances have been classified as long-term debt for financial statement purposes.
KEPCo has the option on the remaining $30,000,000 and $10,000,000 in FFB cortgage 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 maturity date of two years or may elect the long-term maturity date of December 31, 2015. At December 31, 1985, no advances had maturity dates between January 1, 1986 and December 31, 1986.
Advances of funds from member and non-member cooperatives resulted from the transfer of assets and liabilities from the Kansas Electric Cooperative Inc. to KEPCo during 1977. These funds were used to finance economic, engineering, legal and administrative investigations of projects that were being contemplated.
The' agreements with the cooperatives state that should an investigation result in the construction of a project or projects, amounts of investigation and development costs transfered to project utility plant ac' counts,are to'be reimbursable to the systems participating in the agreements on a pro rata basis.
hw '
During 1985 and 1984, interest incurred totaled approximately $24,157,000 and $20,930,000, respectively, of which $5,935,479 and $394,111, respectively, was charged to interest expense and L'he remaining amount was charged to various deferred debits (see Notes C and 'D) or capitalized as part of the cost of capital assets under construction.
/
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NOTES TO FINANCIAL STATEMENTS--CONT'D NOTE F--OPERATING LEASE The Company leases office space under a non-cancellable operating lease.
The lease expires in 1988 and may be renewed for five years. The related rental expense for 1985 and 1984 was $52,635 and $44,625, respectively.
Future minimum lease payments for space currently leased at December 31, i
1985 are as follows:
l l
Year Amount 1986
$59,412 1987 59,412 1988 59,412 The minimum lease payments can be increased to the extent that taxes and insurante paid by the lessor exceed 1984 levels.
NOTE G--PENSION PLAN KEPCo participates in the National Rural Electric Cooperative Association (NRECA) retirement and security program for its employees. KEPCo makes annual contributions to the plan equal to the amounts accrued for pension costs.
In the master multiple-employee plan, which is available to all members of NRECA, the accumulated benefits and plan assets are not determined or allocated by individual employees.
KEPCo's pension cost for the plan for the years ended December 31, 1985 and 1984 was $35,215 and
$35,707, respectively.
NOTE H--INCOME TAXES At December 31, 1985, KEPCo had net operating loss carryforwards totalling approximately $64,279,000 available to reduce future taxable income and investment tax credit carryforwards of $12,014,574 as follows:
Net operating Investment loss tax credit Available carryforward carryforward Through S 8,199,000 1996 12,410,000 1997 17,124,000 1,378 1998 21,467,000 1,862 1999 5,079,000 12,011,334 2000 S64,279,000
$12,014,574 l
NOTES TO FINANCIAL STATEMENTS--CONT'D NOTE H--INCOME TAXES--CONT'D I
The difference between the net operating loss shown in the accompanying financial statements and the net operating loss for tax purposes for 1984 was due primarily to interest costs related to construction which was capitalized as part of construction work in progress for financial state-ment purposes and expensed for tax purposes.
The difference between the net operating loss shown in the accompanying financial statement and the net operating loss for tax purposes in 1985 is due primarily to operating expenses deferred for financial statement purposes (see Note D) and expensed for tax purposes.
NOTE I--CONTINGENCIES During 1982, KEPCo became a defendant in certain litigation concerning disputed power billings from KGE of approximately $746,000.
The dispute was over the effective date of a rate increase and the allowability of a capacity credit related to 30 FN of KEPCo's hydro power that was used in KGE's control area in May, 1982.
In 1983, the litigation relating to the ef fective date was dismissed without prejudice and in 1984 final resolu-tion of the rate increase issue was settled but the capacity credit issue was not resolved.
Consequently, KEPCo member funds in the amount of approximately $596,000 have been retained, with the approval of the KCC, for use as needed upon final resolution of this issue. The $596,000 is included in accounts payable to members at December 31, 1985 and 1984.
In connection with the purchase of KEPCo's six percent interest in Wolf Creek, KGE and KCPL have made claims against KEPCo for approximately
$3,700,000 of KEPCo's capital credits from 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.
In addition, the purchase agreement provided that KGE and KCPL would be indemmified for the tax consequences of the sale of W lf Creek to o
KEPCo. KCPL and KGE have received unfavorable Internal Revenue Service rulings which assessed KCPL and KGE approximately $3,000,000 and $250,000, respectively, in additional taxes resulting from the sale.
If KCPL and KGE are unsuccessful in appealing these rulings, they have indicated they will make claims against KEPCo for the amount of additional taxes paid.
Any amounts paid by KEPCo as a result of these claims will be added to KEPCo's investment in Wolf Creek. Any changes to KEPCo's rates as a result of this additional investment will be subject to KCC approval.
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. _ _ _ _ _ _ _ _ _ _ - _ _ _
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i LETTER TO STOCKHOLDERS
\\
1985 Was a Landmark Year o
i=-
Our main goal came in three parts, Wolf Creek Operation outstanding each challenging in itself:
Wolf Creek was built in less time than other R
- Completing Wolf Creek Generating Station, comparable nuclear units. Still, we constantly stressed
- Maintaining our historic good service to customers, quality so the plant would operate both safely and efficiently. He results of this emphasis are esident.
[
- Starting to restore our financial health.
In November and December, Wolf Creek, even L
We accomplished all three.
though new, ranked second nationally among nuclear On March 11 the Nuclear Regulatory Commission units in electricity produced. Availability of the unit has awarded Wolf Creek its low power license. By been phenomenal. From commercial operation in September 3 the plant was in commercial operation.
September through January 1986, the plant was available Since then its performance has been outstanding.
97% of the time. He plant operated continuously for Service to our customers remained at a high level 134 days. Already we know the unit will set a new U.S.
during the challenging time of bringing Wolf Creek into record for power generated in the first six months of operation. De credit goes to an outstanding effort by operanon.
==
our employees.
hiajor Construction Program Successfully We expect 1986 to produce cash earnings, the first Concluded cash earnings in three years. Eey will be lower than we d like. But, we have taken a number of steps t Completing Wolf Creek ends the huge construction control expenses and have appealed the rate order program we started in the late 1960s. Our goal was to received late m 1985.
reduce the use of gas and oil as power plant fuel by building plants fueled by coal and uranium. To do so we r
invested $1.8 billion in six new generating units built in CONTEN'IS p rtnership with other utilities. Five of the units are coal fired, providing 1,060 megawatts of capacity. Our share
=
[
Letter to Stockholders
.... Cover of Wolf Creek is 530 megawatts.
[
Management's Discussion and Analysis KG&E now has generating capacity to meet customer of Financial Condition and Results needs into the 1990s. Equally important, reliability is g
of Operations..................
.. Page 6 enhanced by the mix of fuels. Government orders to I
- External financing for construction not redece oil and gas use have also been met.
anticipated 1986-1988. Page 7 With our tnajor construction program complete, we r
- Rate order provides 45% of $373.4 million expect construction expense to fall from the yearly average revenue deficiency. Page 8 of $188 million for the past three years to $45 million in
- Wholesale sales up 6%. Page 8 1986, $54 million in 1987 and $60 million in 1988.
- Wolf Creek lowers fuel costs. Page 10
- Loss of AFC reduces earnings. Page 10 Rate Relief Picture Mixed
=
l; Financials....
.... Page 12 hi st of the increased rates we requested for the first year were approved - $135 million of the Directors....................... Back Cover reqmsted $145 million. However, the amount requested
_=
Stockholder Information.......... Back Cover over the long term was reduced. We had requested an l-increase of $370.9 million to be phased in over five
years. %e Kansas Corporation Commission allowed
$169.6 million phased in over three years. However, the KCC has left open the door for eventual rate recognition of all but about 10% of our Wolf Creek investment, y
Still we have appealed the KCC rate order. The
>4 Kansas Supreme Court will hear our case March 28. A decision is expected shortly thereafter.
M.
Financial Results Summarized wo/ 6.
f Earnings per share of common stock in 1985 were N, TA' ^.
$2.13 compared with $3.07 in 1984. As a result of our f4 i rate order, earnings per share in the last quarter of 1985 were 12 cents compared to 58 cents for the same period
. j3 J
3g1 the year before.
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On October 4, directors approved a dividend of 29.5 cents per shate. While that was just half of the former
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3 am
(
l rate, the board's action stopped speculation about the impact of the Wolf Creek rate e der on our dividend.
Both had reached the nundatory retirement age.
4 On January 28,1986, directors declared the first quarter i
rice per On January 28,1986, three additional directors were of 1986 dividend at the 29.5 cent rate. He fthis letter named, expanding the board from 15 to 18 and share of our common stock as of the date o I
was $16.50, a considerable improvement over the 1985 providing increased experience to draw on in these low price of $9.625 on October 3.
important times. The new board members are Glenn l
Biggs, chairman of the board of trustees of the San We expect total earnings in 1986 to be below those Ant m City Public Serv ce Board and vice chairman of of 1985, but the situation is being managed. Earnings the luard, InterFirst Bank, San Antonio, Texas; James J.
from allowance for funds used during construction Noone, attorney and retired adm,nistrative judge for the i
l (AFC), non-cash income, has been largely k>st now that District Court of Sedgwick County, Wichita, and the construction program has been completed.
Lawrence E. Walsh, former president of the American Eree major rating agencies reviewed our financial Bar Association and retired federal district court judge, condition late in 1985. Now, for the first time since Oklahoma City, Oklahoma.
1983, all three agencies describe our securities as
" investment grade."
A Final Note B w ck> sing, it is imp >rtant to say "thank you" Earnings Have Urgent Priority to 125 loyal KG&E employees who retired in 1985.
Continuing to improve our financial health is an Among those were Bernard Ruddick, vice president -
imn>rtant goal. In addition to appealing the rate order, engineering, and Howard J. Hansen, who as group vice we have already taken several steps to accomplish this.
president directed financing and accounting functions.
- Two generating plants have been closed, one retired hir. Hansen was succeeded by James Haines, former vice because of age and the second gas / oil unit taken out of president-regulatory affairs. William B. Moore, who had service and mothbalhi.
tren manager of finance, was named vice president-fin nce and chief financial officer.
l e Some 200 jobs have been eliminated, one of every seven among non-nuclear employees.
The continuing support of stockholders has been a ing pr factor in our ability to successfully deal with the j
e Our cost cuts will mean that 1986 non-nuclear l
operating expenses will be lower than in 1985. Our cntical issues that have been faced in recent years. Your commitment for Wolf Creek is to provide all necessary supportive calls and letters, your questions and your resources to operate the plant safely.
c neerns have helped. %e board of directors and officers fully understand and appreciate the obligation e Cost savings will also result from lower interest rates.
we have to you as owners.
With our power plant construction program complete, most future financing will be to replace high-cost debt Please review all sections of this ren>rt for more and preferred stock with lower-cost securities.
detailed discussions of the points raised. Let me know if you have questions or comments.
l New Directors Named I call 1985 a landmark year because of the significance Two new directors were elected in 1985 to succeed of completion of Wolf Creek and our major construction two who had retired.
program. We are now poised to meet other challenges Howard Brenneman, president and chief executive of head-on and to take advantage of new opportunities.
the Hesston Corporation in Hesston, Kansas, one of the nation's leading manufacturers of farm equipment, was elected to succeed Lyle Yost, founder and chairman of h'
Hesston Corporation. Dr. Newton Smith, physician and surgeon of Arkansas City, Kansas, was named to replace Wilson K. Cadman l
Rolrrt A. Brown, chairman of the board of he Home Chainntm of the Poard and President National Bank, also of Arkansas City. Mr. Brown and Mr. Yost had compihi 48 years of service to KG&E.
February 25,1985 2
I -
FINANCIAL HIGHLIGHTS, FIVE-YEAR COMPARISON m
(fLilars in Tlvmsands cape per dan data) g I
1985 1984 1983 1982 1981 I
Operating Revenues
$ 410,786 $ 410,753 $ 393,053 $ 350,937 $ 313.039 k
Net Income 97,732 $
121,858 $
107,538 $
84,663 $
65,975 Earnings Applicable to Common Stock 83,377 $
106,495 $
92,027 $
70,521 $
53,060 Average Sharen of Common Stock Outstanding 39,118,105 34,698,342 29,912.327 23,503,302 18,631,479 Common Stock Per Share Data y
Earnings.
2.13 $
3.07 $
3.08 $
3.00 $
2.85
[
Cash Dividends 2.065 $
2.36 $
2.27 $
2.15 $
2.06 Indicated Year-End Dividend Rate 1.18 $
2.36 $
2.36 $
2.24 $
2.12 I
Market Value Year-End 14.125 $
17.25 $
17.25 $
18.375 $
14.875 (i
lbok Value (Moody's Net Tangible Assets)
Year-End 20.12 $
20.38 $
20.31 $
19.66 $
20.08 Available Capacity (Megautuu) 2,097 2,099 2,160 2,029 2.064 System Peak Responsibility (Megautuu) 1,612 1,633 1,700 1,626 1,707 J
lhserve Capacity (Megauurts) 485 466 460 403 357 Average Use Per Residential Customer (Kdousaduurs) 9,435 9,812 9,901 9,529 9,433 Average Price Per Residential Kilowatthour 7.13&
6.98&
6.77&
6.05&
5.04&
Number of Customers at End of Year 246,017 242,666 238,591 234,972 233,421 Long. Term Debt
$ 1,047,420 $ 991,004 $ 753,242 $ 613,781 $ 607,256 Ihtiemption Requirett Preferred Stock 76,000 $
78,000 $
95,000 $
95,855 $
82,000 Total Utility Plant (Net)
$ 2,132,047 $ 1,989,013 $ 1,657,203 $ 1,423,043 $ 1,222,372 i
Total Assets
. $ 2,348,203 $ 2,150,558 $ 1,778,232 $ 1,515,517 $ 1,300,495 E
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'3 G=mnercial operathm of Wolf Crak Genmuing Starkm Scpronber 3,19 3, npresenraf annplcrkm of KG&E's ma#nunsnucrkm program.
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These skdled imemen are lairning a twhnique to perform imentant maintounce on mapr I
nansmissam lirws uMe pner fhms.
Financing Activity
- $20 million raised in December Dividend Reinvestment Summarized through a Trade Receivable Offered long-term financing in 1985 Purchase and Sale Agreement.
The Automatic Dividend totalled $259.7 million. The pareeds
- $63 million of Pollution Control Reinvestment and Stock Purchase were used primarily for financing Refunding Revenue Bonds relating Plan permits preferred and common construction including the repayment to Wolf Creek and Jeffrey Energy stockholders to automatically reinvest of short-term borrowings for that Center Unit 3 issued in December their dividends and/or invest optional purpose and the refunding of by the Cities of Burlington and cash payments up to $5,000 per outstanding securities.
Wamego, Kansas. The proceeds quarter.
Financing activity included were used to fund, in part, the The plan was revised effective o $30 million raised in February redemption in June 1986 of $70 February 1,1986, to utilize through the sale of 10WL Series million of pollution control bonds outstanding shares of common stock First Mortgage Ibnds due 1987.
issued by these cities in June 1983.
purchased through a broker at The pnxeeds were used to redeem
- $28.6 million raised during the market value and to eliminate the 5'A the Company's 16WL Series First year through the sale of 1,940,376 discount on reinvested dividends.
Mortgage Ibnds due 1987.
shares of common stock under the Prior to that date, the plan allowed
- $38.6 million raised in April dividend reinvestment and for the purchase of unissued shares through the sale of 2 million shares employee stock plans.
without broketage charges. Shares oi common stock at $19.31 per On March 3,1986,303,000 shares will be purchased at 100'L of the share.
of the $15.50 Series Preferred Stock market value plus brokerage fees.
- $79.5 million of pollution control will be redeemed at a call price of The program was changed because revenue bonds relating to Wolf
$105.81 per share. In ad& tion, the of the reduced need for additional Creek issued in August by the City company's subsidiary, Kansas Gas equity capital.
of Burlington, Kansas. Of this, and Electric International Finance,
$2.8 million was deposited with NN., anticipates retiring $40 million the trustee in a construction fund of its 15VL guarantwd notes due pending ad&tional pollution May 1,1989, on or about May 1, control expenditures.
IWo. at a price of 101.5%
4
l Three Named Customer i
First Employee
.;,,9 4 l
Eree employees named by 2
independent judges as " Customer First Employee of the Year" reflect the special characteristics of KG&E
< :I, f s employees. Employees recogni:ed
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include:
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- CI o Bob Stockton, journeyman
' " @' r $lt-g:
- N lineman, with his crew helped 6
y develop procedures for working on
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energized high voltage transmission
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lines that will result in important
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cost savings.
Lg o Pam Vineyard, marketing
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representative, volunteered hours outside of the work day providing G~
leadership for several commumty development committees.
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o Terrance Wilson, marketing
_ _ - = = --
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representative, worked with city
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officials in ways to use electricity efficiently, and reorgani:ed the Valassis Odor Graphics, a didsion of GFV Onnmuniauions Onnpany, is one of the new United Way structure and f"w otainx plants in uf5 om& ding unhc din,sifiaaion of indusnied luse in KG8E's SC"C "'*'
campaign.
Marketing Theme:
Approval was secured in September About This Report Selling Makes the Difference from the Kansas Corporation His report is a specific example Commission to offer firms creating of cost cutting measures company-Both present and potential new or reinstated jobs a discount wide.
customers are reached. by aggressive based on new power demand.
By reducing the number of pages marketing, sales and industrial Nine companies are already taking from 32 to 24, and eliminating development efforts.
advantage of these discounts and colored pictures, cost of this report Industrial and commercial more than double that number were has been reduced by more than 40 expansion in 1985 created more than seeking the benefits at year end.
percent from the 1984 ren>rt - or 2,600 new jobs in KG&E's service
" Selling Makes the Difference"
$25,000.
area. Twenty-six new or expanding is the 1986 marketing theme.
Last year KG&E's 1984 report cost industries provided 855,000 Marketing targets include increasing 55 cents each. Cost this year is 32 addmonal square feet of space.
electric space heating for re.,idential cents. A sample of electric utility And there were 25 major commercial and commercial customers, and annual reports showed costs ranging buildings completed or underway at increased use of electricity for from KG&E's last year low of 55 year end.
industrial processing.
cents to more than $3 each.
Service Area Map 7
hiapinena cenerating station, 3
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Cities with Customer Services Capabili+y and Fuel l
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> J *@%N fy Offices
- g Gordon Evans Steam Electric Regional lieadquarters E Station. 516 htW,
]
Transmission Lines Natural Gas n
2 Interconnections and,
ri Power Pool hiemberslups Natural Gas R
a Direct interconnections are g hiurray Gill Steam Electnc 1
ntuntained with 10 other Station,324 htW, 4
i utilities and the Company is a Natural Gas g
g La Cygne Steam Electric
- member of the Southwest
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Power Pool and the hiokan Station. 658 AtW*, Coal ww 7g, g
'y:G '
'21.
Pool. Power is regularly g Wolf Creek Generating c
transmitted to and from Station. 5 30 htW*, Nuckur l
7py
~
i other utihties to ensure e Jeffrey Energy Center,+
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- j. s
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s rehabihty and economy.
402 htW*, Coal
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Management's Discussion and Analysis operation and maintenance.
it is anticip ted that the of Financial Condition and Results of Operations new corporation will commence operations by year-er i 1986.
Completion of included $429 million of Allowance Regulatory approvals from the For Funds Used During Construction Kansas Corporation Commission Wolf Creek Marks (AFC).
(KCC) and the Nuclear Regulatory Construction Program End ne Company has no plans for the Commission (NRC) must be Commercial operation of Wolf construction of additional generating obtained prior to transferring Creek Generating Station (Wolf capacity. As a result, net construction operations from KG&E to the new Creek) marked the completion of the expenditures, including nuclear fuel, corporation.
final phase of a major construction are estimated to total $159 million program to diversify fuel usage from for the years 1986 -1988, far below Liquidity, Capital Resources oil and natural gas to coal and what has been experienced in the nree major rating agencies nuclear.
past.
reviewed and issued public ratings on Wolf Creek is jointly owned by the Table 1 and the related graph the Company's first mortgage bonds Company, Kansas City Power and depict actual expenditures and in 1985. After the KCC issued its Light Company (KCPL) and Kansas AFC for Wolf Creek and other decision in the Wolf Creek rate case Electric Power Cooperative, Inc.
construction in 1983-1985 and in September, Standard and Poor's (KEPCo). He Company and KCPL estimates for 1986-1988.
upgraded its rating from BB+ to each own a 47's interest while BBB, Moody's investors Segice KEPCo owns a 6's share.
maintained the Company's bond Wolf Creek construction began in Total Construction Expenditures rating at Baa3, and Duff and Phelps, 1977. He Company was granted a 666 AIC InC. doWRgraded its rating from a 9 to a 10. All three ratings are low-power license in March 1985 and
--i-a full-power license in June. The plant
" "'T A,,,., 9 ","L'",,,,,
presently at comparable levels and are considered investment grade.
was placed in commercial operation
=
on September 3,1985.
y,',4 The Company's long-term financial During the first four months of goals include a ratio of net cash flow w
i from operations to total capitalization commercial operation Wolf Creek 4) of at least 5'h, a common stock market has performed above expectations.
- ( ;
m 3y j*q value equal to or greater than book ne plant was available 95'A of the 1[qb3 value and a common equity ratio of time and actual electricity production 4aVd 45'L. For the year ending December represented 89'A of its capacity, both 1i j[
31,1985, the Company had a g g g] g g g factors being well above industry o
negative ratio of net cash flow from norms. Wolf Creek produced more operations to total capitali:ation of than 2.1 billion kilowatthours (kWh) o of electricity during this period
,,a 0.9'L, and as of year-end had a r
,a The Company's fuel diversification common stock market value of $14%
per share or 7% of book value and a program involved partial ownership New Company Will common equity ratio of 38'L. He of five coal units completed m 1973,1977,1978,1980 and 1983, Operate Wolf Creek
" Capital Structure" graph reviews the in addition to Wolf Creek. Net
%e owners of Wolf Creek plan to 1980-1985 period construction expenditures since 1977 establish a jointly-owned corporation Since 1978, Kansas law has have been more than $100 million to operate the facility. Here will virtually prohibited the inclusion yearly with a peak outlay of $258 be no transfer of utility assets to the of Construction Work in Progress million in 1984.
corporation. He new corporation (CWIP) in the rate base upon which KG&E's share of the cost of Wolf will not own Wolf Creek but will customer rates are set. Because Wolf Creek was $1,390 million which take over responsibility for its Creek has represented a major Table 1 1983-1988 Construction Expenditures Actual Estimated (Thuands)
(Tbuands) 1983 1984 1985 1986 1987 1988 Wolf Creek Generation.
$217,692
$313,591
$177,456 All Other Construction 46,210 40,492 32,700 34,975 44 967 47,687 Total Construction 263,902 354,083 210,156 34,975 44 967 47,687 Nuclear Fuel (1,382) 10,740 2,2M 9,443 8,914 12,892 Total 262,520 364,823 212,440 44,418 53,881 60,579 Less: AFC...
83,143 106,464 85,993 (164)
(148) 219 Net Construction Expenditures
$179,377
$258,359
$126,447
$44,582
$54,029
$60,360 6
Capital Structure financing for construction purposes facility with a group of
"%27 during 1986-1988.
international banks. His At year-end 1985, KG&E's agreement enables the Company
% m., e-r,s.,,+,a am e.
a.,,
e- *+
sinking fund and debt maturities on to sell promissory notes in Ej,T E,
preferred stock, including redemption from international banks in an outstanding long-term debt and foreign markets or to borrow of the $15.50 series preferred stock amount of up to $100 million.
~
~"~ ~
on March 3,1986, were $140.1 The Company did not 1.orrow n
million, $44.3 million and $26.3 under this agreement in 1985.
million in 1986,1987 and 1988, (e) As of December 31,1985, the u
respectively. The Company intends to Company had $28.8 million of u
meet these redemption requirements commercial paper outstanding.
through issuance of securities and The paper is supported by a bank
~~
REIH internal cash generation.
letter of credit (LOC). Le LOC Should additional funds be provides support for up to $50
^
required, the following capital million of commercial paper. He resources will be available.
LOC agreement expires July 8, i,
(a) The Company's first mortgage 1986 and will not be renewed. At bond indenture contains that time, outstanding amounts investment, CWIP became increasingly provisions which restrict the will be repaid.
issuance of additional bonds.
(f) A bankers acceptance facility in large during its construction. Cash was not generated from this While 1985 earnings would limit the amount of $25 million, all of investment. All of the Company's the issuance of bonds to $4 which was available at year-end l
capital requirements for 1983-1985 million, the Company anticipates 1985, expires February 1988.
shown in Table 2 were generated that revenues subject to refund The facility is collaterali:ed by externally.
will be made permanent and fossil fuel inventory.
incre se the Company's ability Discussion pertaining to a Capital requirement needs t issue additional bonds.
December 19,1985 Exposure Draft are typically first met through e Company s Restan'd to amend Financial Accounting utilization of short-term borrowing Anicles of lxmpomnon mntam Standards 130ard Statement No. 71 arrangements. These short-term ii R (FAS 71)is included in Note 10 of borrowings are refinanced by issuing iss fad i l sl of the Notes to the Financial long-term debt, preferred stock or prefened stocks Statements". The proposed revisions common stock. For the 1983-1985 y h.s hort-term to FAS 71, if adopted, could have a (b) m period the Company had sales of Y"#'* """P"*
- "I securities totalling $829 million
$91 million. No short-term Company s financial statements. The which included $584 million oflong' borrowings were outstanding Company,s literal interpretation of term debt and $245 million of at year-end 1985.
the proposed revisions could require common stock.
(c) He Company has two long-term I
'I"IC P ""
- I" **'"I'"',' * * "
revolving credit kian facilities..
stock equity and book salue to The first for $100 milh.on expires decline by 40% 58% and 58%,
"The C&npany does not September 1,1986, and th respectively. In addition, the anticipate the need for second for $200 million expires Company's retained earnings could external financing for May 31,1987, at which times the be a deficit. He Company vigorously construction purposes during mounts then outstanding under opposes the proposed revisions to these facilities may be converted FAS 71 as they would not properly 1986-88.,,
to four-year term loans. As of reflect the Company's financial December 31,1985, $100 position. The KCC also opposes in view of the greatly reduced million was outstanding under several of the significant concepts that construction expenditures (see Table the first of these agreements and affect the Company, although the 1), and increased internal cash
$50 million under the second, KCC agrees with the concept of generation resulting from the leaving $150 milhon available.
writing-off 10% or $125 million of September 1985 Wolf Creek rate (d) In December 1984, the Company the costs deemed imprudent in its increase, the Company does not entered into a 3M year $100 rate decision. If approved, the anticipate the need for external million revolving underwriting revisions to FAS 71 might have an adverse effect on the liquidity of the Table 2 1983-1985 Capital Requirements Company.
(Tiummds) 1983 1984 1985 Net Construction Expenditures
$179,377
$258,359
$126,447 Add: Sinking Fund and Debt Maturities...
51,283 2,073 55,000 Total Capital Requirements
$230.660
$260,432
$181,447 7
Management's Discussion and Analysis ne Company also rded an of Financial Condition and Results of Operations
[,Py' ["i["ne [,y(29 I9 5[ with
^r
, t0r Commission (FERC) for a wholesale rate increase in the amount of $8.1 Wolf Creek Rate Increase 2.No rate of return or deferred lbas.
e d ""$ in Order Issued September 27 carryi"hc b" l 1I
,n
(,
%e KCC issued its rate order in Creek costs that exceeds $1.29 Wolf Creek for approximately half of the Company s Wolf Creek rate million per MW, which the KCC the test year and proposes rate increases from 22% to 42%.
case in September 1985. He order found to be the hypothetical cost of He FERC has permitted rate permits the Company to increase coal-fired generation. After taking retail rates by $166.7 million, which into account the imprudency increases totalling $6.6 million or was later amended to $169.6 milhon, exclusion, this adjustment reduces 81% of the requested amount to become effecnve on the date Wolf with the increase to be phased-m over the valuation of Wolf Creek by a three-year period. His amount
$499 million to $671 million' Creek began commercial operation represents 45% of the Company's (September 3,1985), affecting
$373.4 million projected r: venue 3.Only 39% of the Company's share customers whose contracts allow deficiency.
of Wolf Creek will be necessary to unilateral rate changes. For other The rate order permits retail rates meet peak requirements projected customers, except one whose rates to be increased, subject to refund, by for 1990. Consequently, the will become effective on November
$135 million during the first year, Company will be permitted to earn 11,1986, rates will become effective and upon application to and approval a rate of return of 11.99% on 39%
on the date of the final order.
by the KCC, $20 million in the of its interest in Wolf Creek, after For further information with second year and $14.6 million in the taking into account the preceding respect to rates, see Note 2 of the third year. He difference between adjustments. This values Wolf Notes to Financial Statements.
the amount the Company would have Creek at $260 million for full rate received had the $169.6 million rate of return purposes. ne remaining Results of Operations increase been granted at one time and 61%, valued at $411 million, will Details of sales and customer what the Company receives during be treated as excess apacity upon statistics are presented in Table 3 and the three year phase-in in each year which the Company will not be the accompanying graph.
will be deferred. His deferral along allowed a cash return but will be with associated carrying charges allowed to record a carrying charge computed at the Company's overall as described below.
sales cost of money is recorded net of Should the KCC find that, in the m,7Z
,,a taxes on the income statement as future, excess Wolf Creek capacity is
,c - i== wm phase-in revenues and like AFC needed to serve the Company's reflects a non-cash adjustment to Kansas jurisdictional customers, the u
n 74 74 earnings. He KCC's order states that Company anticipates that the KCC a recovery of the deferrals and will permit it to earn a full rate of associated carrying charges should return on that capacity priced at the
.m.
'mm take place by the end of the eighth then hypothetical cost of coal-fired
' F 1:
year.
generation. Until that time, the
'WWmmQ C
A-carrying charge will be recorded, net j'
gg E
"The Company appealed the of taxes, as phase-in revenues. As in 2 m KCC order. The appeal is the case of AFC, it represents a non-r e cash adjustment to earnings which ts pending in the Kansas subject to recovery in future years.
Supreme Court.,,
This carrying charge, $14 million annually, represents the cost of The KCC in its order reached the money associated with the debt and Total sales during 1985 remained following conclusions with respect to preferred stock portion of the $411 virtually unchanged from 1984.
the Company's requested rate base million of Wolf Creek treated as Milder temperatures throughout the treatment for Wolf Creek:
excess capacity, and will be recovered year and a reduction in sales to a 1.He Company will be allowed to in a manner determined by the KCC refinery in the Company's service recover, through depreciation, over the remaining life of the plant.
area were factors in the declines in
$1,170 million or 90% of its The Company judged the rate residential and industrial sales,
$1,295 million total Kansas relief granted by the KCC to be respectively. Sales to the refinery are jurisdictional investment in Wolf inadequate and requested a rehearing, expected to increase slightly during Creek. He remaining $125 million which request was denied.
1986, but are not expected to reach was found by the KCC to have ne Company appealed the KCC former levels.
been imprudently incurred and, order on December 12,1985.The Wholesale sales, which accounted therefore, the Company will not be appeal is pending in the Kansas for 13% and 12% of total electric allowed to recover, through Supreme Court. He Company is sales in 1985 and 1984, respectively, depreciation, or earn a return on hopeful that a decision will be increased 6% during 1985 as a result this amount.
rendered in the second quarter.
of increased economy sales to other 8
l utilities. He commercial operation of categories increased compared to a result of greater sales to retail Wolf Creek in the fourth quarter of 1983. A 12% increase in industrial customers and two spring 1983 retail 1985 provided available capacity for sales resulted primarily because of the rate increases. Wholesale revenues, economy sales to wholesale improvement in the national which provided 6% of total revenues customers. He Company expects the economy and increased sales to for 1984, decreased 27% because of a level of wholesale sales to be very KG&E's largest customer.
drop in sales to municipalities.
volatile in the future depending upon Commercial sales were up 4% in market conditions.
1984 over 1983 and sales to ne increase did not restore residential customers increased less Electric Operating Resenues wholesale sales to former levels after than 1%.
m,['"ZZ,,,,
experiencing a 17% decrease in 1984 Details of changes in revenues and c _,a
== w.
over 1983. %e decline resulted from rates are shown in Tables 4 and 5 and the decisions of several partial the accompanying graph.
requirement municipal customers to Total operating revenues were
.m generate or purchase from other unchanged in 1985 at $411 million.
m sources a greater portion of their As shown in Table 4, increases in
,m._ _
power requirements. The Company rates during the year were offset by pp
~, 7j fm nm C p q does not expect to serve these slightly lower sales and lower fuel 10 1*
4 customers in the future other than costs.
through economy sales.
Total 1984 operating revenues Q '"
In 1984, sales in all major retail were up 5% compared to 1983 as g,.,,1..
o m.
T:ble 3 Sales and Customer Statistics Increase or (Decrease) from Prior Year Table 4 Operating Revenues 1985 1984
" '"""I"C" ""
Electric Percent Electric Percent or (Decmase)
Electric Sales (M kWh)
Sales Change Sales Change ghn That
)
r Residential...
(50,907) (2.4yL 15,909 0.8%
gq Commercial 42,504 2.7 59,248 3.9 Industrial....
(55,538) (2.0) 295,640 12.0 gy g{3 Public Street &
Highway Lighting...
(6,426) (10.2)
(2,049) (3.1)
Retaih
}tric Sales
(,
$15, 39 Retail Sales..
Wholesale Sales...
(70,367) (1.1) 368,748 6.0 58,017 6.3 (188,708)(16.9)
Rate Increases 25,767 12,991 Total Sales.
(12,350) (0.2yro 180,040 2.5%
Other (5.604) 150 Percent Percent Total Retail (3,455) 28,887 Customers (End of Year)
Customers Change Customers Change Wholesale 3,488 (11,187)
Residential.
3,006 1.4%
3,691 1.7%
Total Revenue $
33 $17,700 Commercial 353 1.8 299 1.5 Industrial........
(32) (0.7) 51 1.1 Operating Expenses Fuel and Purchasal Pouer ih y1i ting..
25 3.6 35 5.3 Fuel and purchased power costs Retail Customers..
3,352 1.4 4,076 1.7 comprised 60% of total operation Wholesale Customers (1) (2.6)
(1) (2.5) and maintenance expenses in 1985 Total Customers.
3,351 1.4%
4,075 1.7%
compared to 69% in 1984 and 70%
in 1983. He lower cost of generating T ble 5 Retail Rate Increases power with nuclear fuel during 1985 was a significant factor in the recent Reccived, 1983-1985 decline.
Amount percent percent Allowed Alloweti Grantesi of Amount Increase in Return on Return on Date (Millions) Requested Revenues Rate Base Common Equity 4/83
$15.2 32 %
4.4%
11.52 %
15.50 %
5/83 18.9" 93 5.5 11.37 15.50 9/85 135.06 36.7 11.99 15.50
" Sthkyt to refwul.
6 Siegt to refund. This anunmt is the first 3ur increase of a three year phase-in and is in allition to the $x8.9 million grantal subp1 to refund in 5/8.
3
< A total resenue incraise of $i6.6 million will be phased-in oter three years. This 9
refktts 45% of the Comismy's rest 3ur remme deficieno 9
Management's Discussion and Analysis on investments until the assets begin of Financial Condition and Results of Operations providing service to customers.
Instead, the Company recorded the cost of money associated with the Average fuel cost data and the with average cost of $1.42 per million investment as current earnings.
sources of energy for the Company Bru in 1985 compared to $1.41 in Rese earnings adjustments appear are detailed in the accompanying
- 1984, in the income statement as AFC-graphs.
Purchased power costs increased other and AFC-borrowed. AFC-other 66% in 1985. This increase resulted reflects the cost of equity funds from the accounting treatment of all invested in construction while AFC-Average Fuel Cost Data test power from Wolf Creek. During borrowed represents the cost of debt Wolf Creek testing all power which finances construction. nese m
generated by the plant was treated as adjustments were made with the ama.m.,-
purchased power.
understanding that additions to nw m
In 1984 the Company purchased income would be subsequently
_ - - - - - - i-27% less ekctricity than in the recovered through higher rates when previous year, resulting in a 26%
the assets represented by the 2w w ----
7-o, decrease in purchased power expense.
investment began service to His decline resulted primarily from customers.
,u
,,4 m,
the full-year availability ofJeffrey For a discussion of phase-in
~
n s
a P
L Energy Center (JEC) Unit 3, which revenues, see " Wolf Creek Rate i*
L F
began operation in mid-1983, and Increase Order Issued September i
i greater unliz.ation of the 1.a Cygne 27."
t Unit 1.
AFC net of tax and phase-in revenue, both non-cash components Other Operating Expenses of earnings, were $93 nulh,on m Other operation expenses were up 1985, $106 million in 1984 and $83 Sources of Enemy 22% m 1985 primarily because of million in 1983 and represented Wolf Creek being in operation 114%,100% and 90%, respectively,
, C E,.
beginning in September, inflation, an of earnings applicable to common mcrease m uncollectible customer stock. AFC accruals ended for Wolf accounts and mcreased administrative Creek in September and thus will
- o
.-~__12,.
and general expenses. Other provide minimal contribut on to i
operation expenses increased 13% in earnings in the future.
] y g< mm p] q 1984 from 1983 bewuse ofinflation, Interest on long-term debt r-
,, ]( $kdLi an increase in uncollectible customer increased 17% in 1985 and 33% in accounts and m, creased administrative 1984, due to increased debt incurred and general expenses relating to JEC to finance construction. Total interest and La Cygne plants.
charges-net increased 61% and 26%
Maintenance expenses were up during the same years for similar 32% m 1985 over 1984 as a result of reasons although the 1985 increase o
.a the scheduled overhauls of the La was magnified by the decline in the Cygne Unit I and JEC Umt I and allowance for borrowed funds used the commercial operation of Wolf during construction. With the Coal continued to be the main Creck.
completion of Wolf Creek this offset source of energy representing 69% of
&prect n n and taxes other than will decline sharply in subwquent fuel usage on a Btu basis in 1985 income taxes increased during 1985 compared to 75% in 1984 and 67%
because Wolf Creek was m years.
in 1983. Nuclear fuekd generation mmmerci I per tion for three comprised 15% of the fuel usage in m nths dunng the year.
With the rece,pt of Wolf i
1985 even though Wolf Creek first ne Company's effective federal Creek revenue increases began commercial operation in inmme t x r te and changes m granted by the KCC, internal September. With the com[letion ofinc me t xes for the last three years cash generation will improve Wolf Creek, both coal an gas usage re detailed in Note 9 of Notes t in future years."
declined during 1985.
Financial Statements.
The Company's average fuel cost per million Btu decreased 17% in Other Statement ofInanne items 1985 compared to 1984. He use of During the past three years, Net inanne nuclear fuel at an average cost of $.67 virtually all of the Company's Net income decreased 20% in per million Btu contributed to the reported eamings have resulted from 1985 compared to 1984. The decline as well as decreased costs for non-cash adjustments to its income decrease can be attributed to the oil and natural gas. He average cost statement. These adjustments, called inadequate rate treatment received per million Btu for natural gas was allowance for funds used during from the KCC and the loss of AFC
$2.87 in 1985 compared to $3.25 in construction ( AFC) were made when Wolf Creek began commercial 1984. He cost of coal for the because the KCC generally does not operation in September. (See " Wolf Company was virtually unchanged permit utilities to eam a cash return Creek Rate Increase Order issued 10
E September 27" and "Other Market Price and Ikiok Value complaint for the plaintiff's failure to Statement of Income items.") As a of Common Stock make a demand upon the Board of result of the foregoing, the Company
_, [ ",,,,,n,,,, m y,m, Directors prior to bringing the suit.
anticipates net income m 1986 will be The motion is still pending.
us substantially lower than in 1985.
in February 1986, the City of
?
However, with the receipt of Wolf Wichita, Kansas passed a resolution a
Creek revenue increases granted by q Mi p fd directing that a study be conducted to the KCC, internal cash generation p F 3 _ '" ib[j j
J determine the feasibility of the City, will improve in future years.
p either singly or in cooperation with a i
Eamings and Ditidends
-v-group of municipalities served by the
'o Company, acquiring all or a part of Earnings per average share of the Company's facilities providing k
common stock and common dividends paid are detailed for the electric and street lighting sersices to the City. While the Company has 1980-1985 period in the
~
accompanying graph.
determined that an appropriate proposal for the purchase of its Impact of Inflation Wichita street lighting facilities would Annual Common Stock and Changing Prices be in its interest, it does not believe a Earnings per Share and Intlation had a continuing impact purchase of any portion ofits other Cash Dividends Paid on the Company's operations. A facilities would be.
" ""~ " " ' " ' ' '
discussion of its effects is included in For further information with F
Note 13 of the Notes to Financial respect to other matters, see Note 10
~
u_
m Statements.
f Notes to Financial Statements.
,y Other Matters The company's Form 10-K is filed
~
2n m,
~
~
In September 1985, a stockholder with the Securities and Exchange j
p derivative suit was brought in the Commission and is available from i*
L U.S. District Court for the District of that agency or from the Company.
}f Kansas, against the Company's For a copy of KG&E's " Financial directors alleging that the directors and Statistical Report 1975-1985" or
~
mismanaged and wasted the assets of other information, contact the g
i~ i.. - i-." '"
the Company in the construction of stockholder records or investor Wolf Creek. The defendants have relations departments as indicated on Earnings applicable to common fikd a motion to dismiss the the back page of this report.
stock were $83 million, a decrease of 22% from $106 million in 1984. The
\\
lower earnings per share can be y,n~-
m4
- t'C attributed to the decline in AFC and
="
h an increase in average shares of common stock outstanding. Earnings h j for 1983 were $92.0 million or 14%
r less than 1984. In 1985 the Y
ll/
[
Company's earned return on average h
' V ;g -
common equity was 10.7% in h',n T,EF comparison to 15.4% in 1984 and
!"'h T
E 15.8% in 1983.
m, m Dividends paid on common stock k W [ M "
I74,9 -(
{tir e wen M.
h(pH.
in 1985 were $2.065 per share, a
- ~
. F t. -
L decrease of $.295 from 1984, A.
a r ;f,9
%,4 :
o reflecting the 50% reduction in the p
C
}
- g hf[k *
- ?T' @
L fourth quarter dividend. The A
a dividend reduction for the fourth Iqjp.
7--
quarter came as a result of the
/ g.
s,y.
.v m
. y-jS 44 unfavorable rate order received from 4
N :".3 the KCC. (See " Wolf Creek Rate p
iRJ
- '*d ?.?[ANg ( >1%
Increase Order Issued September 7 i.
J%'p 27.") The rate increase granted was
.a c
j y
not adequate to maintain the m;.;
3;n 4
/i
%9
-wQ h M. t p 4 ei r
2 0 common stock dividend at the prior
.'W JM 7
m
%/A 7t Mi'y?~h level of $0.59 per share.
? -
w m
n ~-
9 1 4,3 Details of the market price and book value of the Company's
_A$ "
common stock are presented in the N
accompanying graph.
Effacnt mohh: anon of resources is cnacal to pnnnpt restoranon of smw when stanns hit.
{
11 1.
Kansas Gas and Electric Company STATEMENTS OFINCOME For the Years Enda! Daanber 3:
1985 1984 1983 (Thousands of Dollars)
Operating Revenues (Note 2)...........................
$ 410,786
$ 410,753
$ 393,053 Operating Expenses:
Fossil fuel.......................................
102,696 148,959 139,339 Nuclear fuel...............................
7,169 30,180 18,221 24,541 Purchased power - net..
59,314 48,573 43,050 Other operation.........
Maintenance....................
34,540 26,108 27,871 Total operation and maintenance..................
233,899 241,861 234,801 44,543 32,433 29,919 Depreciation.............
Taxes other than incomes taxes 19,246 16,063 15,078 Current income taxes (Note 9).............
(1,493) 2,910 Deferred income taxes (Note 9) 36,095 42,517 36,993 Total operating expenses 333,783 331,381 319,701 Operating Income......................................
77,003 79,372 73,352 Other income and Deductions:
Allowance for other funds used during construction.......
62,652 7P,345 63,068 Equity in earnings of subsidiary companies (Note 7)...........
1,353 1,603 1,400 Phase-in revenue - net of tax (Note 2)....................
8,770 Miscellaneous - net 3,956 2,299 659 4,820 (1,993)
(1,061) income taxes - net (Note 9) hal other income and deductions 81,551 80,254 64,066 Income before Interest Charges......................
158,554 159,626 137,418 Interest Charges:
Interest on long-term debt................
102,194 87,508 65,948 Other interest..............
3,742 5,372 3,031 Amorti:ation of debt premium, discount and expense.
1,239 729 768 Allowance for borrowed funds used during construction (46,353)
(55,841)
(39,867)
Total interest charges - net..................
60,822 37,768 29,880 97,732 121,858 107,538 Net income Preferred Stock Dividends 14,355 15,363 15,511 Earnings Applicable to Common Stock....................
83,377 106,495 92,027 Average Shares of Common Stock Outstanding............
39,118,105 34,698,342 29,912,327 Earnings Per Share of Common Stock...................
2.13 3.07 3.08 STATEMENTS OF RETAINED EARNINGS For the Years Endai Dannber 3 r 1985 1984 1983 (Thousands of Dollars)
Balance at Beginning of the Year.......
181,452 157,810 134,544 97,732 121,858 107,538 Net income.........................................
Total..............................................
279,184 279,668 242,082 Deduct:
Cash Dividends:
Preferred Stock (at prescribed rates of each series - Note 5) 14,355 15.363 15,511 Common Stock - $2.065 in 1985; $2.36 in 1984; 80,426 82,723 68,572
$2.27 in 1983 67 130 189 Capital Stock Expense...........
Total............................
94.848 98,216 84,272 Balance at End of the Year 184.336 181,452 157,810 Sa notes to fmancial scarements.
12
-~
~..
] September 27" and "Other Market Price and Ikek Value complaint for the plaintiff's failure to o
=
Statement of Income Items.") As a of Common Stock make a demand upon the Ik>ard of result of the foregoing, the Company m m m [ 1 m,., m.m.
Directors prior to bringing the suit.
anticipates net income in 1986 wdl be he motion is still pending.
substantially lower than in 1985.
In February 1986, the City of However, with the receipt of Wolf
-5y""""-
Wichita, Kansas passed a resolution s
Creek revenue increases granted by q b {9 @j directing that a study be conducted to E
the KCC, internal cash generation g 8,, '"
g-determine the feasibility of the City, n
wdl improve in future years.
,~ [ ]
either singly or in cooperation with a "a'
.m
~,,,,
group of municipalities served by the Eamings and Dividends Earnings per average share of Company, acquiring all or a part of E
common stock and common
- - ~ ~
the Company's facilities providing dividends paid are detriled for the electric and street lighting services to the City. While the Company has o
4 1980-1985 period in the
-2 accompanying graph.
determined that an appropriate L
proposal for the purchase of its Impact of Inflation Wichita street lighting facilities would Annual Common Stock and Changing Prices be in its interest, it does not believe a Earnings per Share and Inflation had a continuing impact purchase of any portion ofits other facilities would be.
Cash Dividends Paid on the Company's operations. A e
discussion of its effects is included in For further information with Note 13 of the Notes to Financial respect to other matters, see Note 10
"".c._
m m.
f Notes to Financial Statements.
w
-- ~
Statements.
m 7
w Other Matters ne company's Form 10-K is filed
,n,m, k
j In September 1985, a stockholder with the Securities and Exchange w
derivative suit was brought in the Commission and is available from
_ [.
U.S. District Court for the District of that agency or from the Company.
Kansas, against the Company's For a copy of KG&E's " Financial
~
- ~ ~
directors alleging that the directors and Statistical Report 1975-1985" or N
mismanaged and wasted the assets of other information, contact the o
p the Company in the construction of stockholder records or investor Wolf Creek. The defendants have relations departments as indicated on r
Earnings applicable to common filed a motion ta dismiss the the back page of this report.
F stock were $83 million, a decrease of E
22% from $106 million in 1984. The
\\
1 lower earnings per share can be y v ~..., _, -
m60 s
attributed to the decline in AFC and 8 " "- ~"
E an increase in average shares of common stock outstanding. Earnings h <[
for 1933 were $92.0 million or 14%
E-
[
'f g less than 1984. In 1985 the c.
m?
Company's earned return on average
- 44 1.j; ~
,.g common equity was 10.7% in
'1 2 '- cg comparison to 15.4% in 1984 and ii n id on common stock S
_a..
in 1985 were $2.065 per share, a t;(tir ME. A
[
decrease of $.295 from 1984, gg_
Y, ;f A Ig.[-
k-reflecting the 50% reduction in the kc
.% k 9
%4 :
m AA higt!
- ~' Y [ M.
fourth quarter dividend. He R:
dividend reduction for the fourth
' ~ ~
- E-unfavorable rate order received from 7
r4
' x r, o
PQ x, e W quarter came as a result of the y
j
=
^ -
M ^.
Wr w
E the KCC. (See " Wolf Creek Rate h'?
'U J
%".Y.k i
Increase Order Issued September 7f M
- T N!@ j Ne( 3 27.") %e rate increase granted was
- a
),*
not adequate to maintain the
- f 2 gi r
,/i M '4 e%:.'
.,g.
y; E
common stock dividmd at the prior r
A ia s
,,h N--.M*, u
@h a N 5< ]'
level of $0.59 per share.
2 Details of the market price and 7
E book value of the Company's P
'=
common stock are presented in the M
E accompanying graph.
Efficient moNii:ation of resouras is mrical to prompt restoranon of 5cnu' uhen 5tomu hit.
g 11
Kansas Gas and Electric Company STATEMENTS OF INCOME For the nurs EnM Daxmber 3 1985 1984 1983 (Thousands of Dollars)
Operating Revenues (Note 2).........
$ 410,786
$ 410,753
$ 393,053 Operating Expenses:
Fossil fuel...................
102,696 148,959 139,339 7,169 Nuclear fuel Purchased power - net..
30,180 18,221 24,541 Other operation................
59,314 48,573 43,050 Maintenance...
34,540 26.108 27,871 Total operation and maintenance.
233,899 241,861 234,801 Depreciation............
44,543 32,433 29,919 Taxes other than incomes taxes...
19,246 16,063 15,078 (1,493) 2,910 Current income taxes (Note 9)
Deferred income taxes (Note 9) 36,095 42,517 36,993 Total operating expenses 333,783 331,381 319,701 Operating Income...
77,003 79,372 73,352 Other Income and Deductions:
Allowance for other funds used during construction.
62,652 78,345 63,068 Equity in earnings of subsidiary companies (Note 7) 1,353 1,603 1,400 Phase-in revenue - net of tax (Note 2)....
8,770 Miscellaneous - net 3,956 2,299 659 Income taxes - net (Note 9) 4,820 (1,993)
(1,061)
Total other income and deductions.
81,551 80,254 64,066 Income before Interest Charges.
158,554 159,626 137,418 Interest Charges:
Interest on long-term debt.
102,194 87,508 65,948 3,742 5,372 3,031 Other interest......
Amorti:ation of debt prernium, discount and expense 1,239 729 768 Allowance for borrowd funds used during construction (46,353)
(55,841)
(39,867)
Total interest charges - net.
60,822 37,768 29,880 Net Income 97,732 121,858 107,538 Preferred Stock Dividends 14,355 15,363 15,511 Earnings Applicable to Common Stock....
83,377 106,495 92,027 Average Shares of Common Stock Outstanding 39,118,105 34,698,342 29,912,327 2.13 3.07 3.08 Earnings Per Share of Common Stock STATEMENTS OF RETAINED EARNINGS For the Yazrs Endal Daunber 3 1985 1984 1983 (Thousands of Dollars)
Balance at Beginning of the Year..
181,452 157,810 134,544 Net Income 97,732 121,858 107,538 Total..
279,184 279,668 242,082 Deduct:
Cash Dividends:
Preferred Stock (at prescribed rates of each series - Note 5) 14,355 15,363 15,511 Common Stock - $2.065 in 1985; $2.36 in 1984;
$2.27 in 1983 80,426 82,723 68,572 Capital Stock Expense....
67 130 189 Total.......
94,848 98,216 84.272 Balance at End of the Year 184.336
$ 181,45]
157,810 Sa nota to fmancial statanents.
12
BALANCE SHEETS DECEMBER 31,1985 cnd 1984 1985 1984 ASSE'IS (Thousands of Dollars)
Electric Plant at original cost (Note 6):
Plant in service..................
$2,418,957
$1,009,838 Less accumulated depreciation 320,880 293,683 Net plant in service 2,098,077 716,155 Construction work in progress 9,725 1,248,322 Electric plant held for future use - net 6,414 2,871 Nuclear fuel - net...............
17,831 21,665 Total electric plant - net.
2,132,047 1,989,013 Other Property and Investments:
Investment in subsidiary companies (Note 7) 13,504 13,589 Special interest accounts - adjustable rate series (Note 6)..
20,918 22,356 Other.......................................
555 191 Total other property and investments.......
34,977 36,136 Current Assets:
Cash..................................
3,350 1,355 Temporary ash investments (Note 6)................
74,000 39,000 19,511 32,022 Accounts receivable - net Fossil fuel - at average cost (Note 6)...............
26,545 26,822 Materials and supplies - at average cost....
14,607 9,340 Pregyments and other current assets.....
2,762 769 Total current assets................................
140,775 109,308 Deferred Debits:
Unamorti:cd debt expense.
9,546 8,662 Phase-in revenue requirements (Note 2).
8,770 Other 22,088 7,439 Total deferred debits 40,404 16,101 Total..........................................
$2,348,203
$2,150,558 CAPITALIZATION AND LIABILITIES Capitalization:
Common stock, without par value, authori:ed 50,000,000 shares; outstanding 40,464,810 and 36,524,434 shares, respectively (Note 4)..
$ 628,298 31.4%
$ 561,106 29.9 %
Retained earnings (Note 6).........................
184,336 9.2 181,452 9.7 Other paid-in capital (Note 4)............
1,661 0.1 1,661 0.1 Common stock equiti 814,295 40.7 744,219 39.7 Preferred stock - redemption not required (Note 5).......
63,701 3.2 63,701 3.4 Preferred stock - redemption required (Note 5)..........
76,000 3.8 78,000 4.1 Long-term debt (Note 6)...........................
1,047,420 52.3 991,004 52.8 Total capitali:ation.....................
2,001,416 100.0 %
1,876,924 100.0 %
Current Liabilities:
Short-term borrowings (Note 3)...........
13,000 Securities due within one year (Notes 5 and 6).............
110,100 25,000 Accounts payable..................
46,371 65,313 Customers
- deposits............
2,831 2,471 Taxes accrued..................................
14,503 11,117 Interest accrued..................................
27,067 22,998 Total current liabilities 200,872 139,899 Deferred Credits:
Accumulated deferred income taxes (Note 9) 120,123 96,669 Accumulated deferred investment tax credit (Note 9) 21,747 32,724 Customers' advances for construction.........
2,581 2,540 Other...........................................
1,464 1,802 Total deferred credits 145,915 133,735 Conuniements and Contingencies (Notes 2 and 10)
Total...........................................
$2,348,203
$2,150,558 See notes to financial staranents.
13
1 Kansas Gas cnd Electric Company STATEMENTS OF CHANGES IN FINANCIAL POSITION For the Yazrs Endal Daunber 3 r 1985 1984 1983 (Thounds of Dollars)
Sourcesof Funds From Operations:
Net income............
$ 97,732
$ 171,858
$ 107,538 Non-cash charges (credits) to net income:
Depreciation.....................
44,543 32,433 29,919 Amorti:ation of nuclear fuel..........................
6,118 Displacement power cost.........
13,747 Deferred income taxes - net 32,327 40,435 32,741 Deferred investment tax credit............
(1,052) 2,082 4,252 Allowance for funds used during construction (AFC)........
(109,005)
(134,186)
(102,935)
Phase-in revenue - net (8,770)
Other - net...........
1,239 729 768 From operations.....
76,879 63,351 72,283 From External Sources:
First Mortgage Bonds 30,000 150,000 Other long-term debt....
148,300 96,000 157,000 Other long-term agreements 720 525 Total debt....
179,020 248,525 157,000 Common Stock.............................
67,192 76,701 100,624 Trustee investment fund - net....
17,156 (8.258)
(32,258)
From external sources 263,368 316,968 225,366 Other - net...
(8,425)
(3,320)
(3,682)
Total Sources of Funds
$ 331,822
$ 376,999
$ 293,%7 Application of Funds Gross plant additions...
$ 212,440
$ 364,823
$ 262,520 less AFC charged to construction.
85,993 106,464 83,143 Net construction expenditures.......
126,447 258,359 179,377 Dividends 94,781 98,086 84,083 Securities redemptions....
55,000 2,073 51,283 Increase (decrease) in working capital.....
55,594 18,481 (20.776)
Total Application of Funds.............
$ 331,822
$ 376,999
$ 293,%7 Summary of Changes in Working Capital:(other than securities due within one year):
Cash.................................................
1,995 (562)
$ (5,507)
Temporary cash investments........................
35,000 39,000 (4,700)
Accounts receiveable..
(12,511)
(10,452) 18,439 Other current assets..................
6,983 (391) 2,554 Accounts pa yable.......................................
18,942 3,%5 (24,014)
Accrued liabilities..
(7,455)
(8,669)
(2,324)
Short-term debt 13,000 (4,000)
(9,000)
Other current liabilitics (360)
(410) 3.776 Net Change in Working Capital.............................
$ 55,594
$ 18.481
$ (20,776)
Noce: The igN and 19 3 format has lwn chawed fmm Statonents of Sources of Funds for Cautmcrion.
8 See Notes to Financial Statements.
14
NOTES TO FINANCIAL STATEMENTS beak purposes. Deferred taxes are prosided for such items as approved by the appropriate regulatory commission and as 1.
Summary of Significant Accounting Policies:
required by the Internal Revenue Code. In connection with an Syttem of Accounts - Ee Company is subject to the order from the KCC, AFC is recorded in Electric Plant on a net jurisdiction of the State Corporate Commission of the State of basis with an amount equivalent to the income tax effect on the Kansas (KCC) and the Federal Energy Regulatory Commission borrowed funds portion of the AFC charged to deferred taxes (FERC) and maintains its accounts in accordance with the under operating expenses and credited to AFC uniform system of accounts prescribed by these regulatory He Company defers and amorti:es the investment tax credit commissions. As a regulated utility, the accounting principles over the life of the applicable property, in accordance with an applied by the Company differ in certain respects from those order of the KCC.
applied by non. regulated business.
Revenues - Operating revenues and accounts receivable Electric Plant - %e Company performs a portion of its include amounts actually billed for services rendered and fuel construction work and capitali:es general overhead and engineer-adjustment c. ase variances.
ing expenses related to construction projects and credits the Fuel Adjustment Clause Revenue-%e Company's tate projects for the value ofenergy generated during testing. Mainte-schedules include a fuel adj ustment clause which permits current nance and repairs of property and replacements and renewals of recoveries of fuel costs on an estimated basis. The variances items determined to be less than units of property are charged to between actual and estimate are adjusted through the fuel oprating expenses. %e cost of units of property replaced or adjustment clause two months after they are recorded.
renewed, plus removal costs, less salvage, is charged to accumu-lated Jepreciation, and the cost of related replacements and 2.
Rate Matters:
renewals is added to electric plant. Betterments are charged to In connection with the start of commercial operation of Wolf electric plant.
Creek in 1985, the KCC granted the Company, effective Nuclear Fuel - He cost of nuclear fuel in process of October 3,1985, a $166.7 million interim rate increase (which refmement. conversion, enrichment, and fabrication is recorded was later amended to $169.6 million) subject to refund or as an asset at origmal cost and is charged to expense based upon adjustment. With respect to the Company's investment in Wolf the quantity of heat produced for the generation of electricity.
Creek amounting to $1,327 million (excluding an additional $61 Under the Nuclear Waste Policy Act of 1982, the U.S. Depart.
million investment in Wolf Creek not subject to the rate order),
ment of Energy ( DOE) is responsible for the ultimate storage and the KCC generally determined the amount of the increase disposal of spent nuclear fuel removed from nuclear reactors.
granted based on the following amounts ofcost recovery through Under a contract with the DOE for dispwal of spent nuclear depreciation and rates of return:
fuel, the Company pays a quarterly fee to the DOE of 1 mill per Investment Amount kilowatthour on net nuclear generation.
In Wolf Kansas of Cost Rate of
%e accumulated amorti:ation of nuclear fuel was $6.1 mil-Creek Juriulictional Recovery Return lion at December 31,1985.
gjggg g,gg Decommissioning Costs - Wolf Creek Generating Station
$266
$260
$260 11.995 %
(Wolf Creek), a nuclear plant, was placed in senice September 421 411 411 6.0 1985. ne Company's share of the cost to take Wolf Creek out 512 499 499 of senice in the future is estimated by the KCC to be $65.8 128 125 million. %is amount, to be accrued over 30 years, is charged to oprating expense and subsequently collected from customers.
He rate increase of $169.6 million is to be phased in over The monies are to be transferred to an external trust fund three years in the amounts of $135, $20 and $14.6 million in quarterly.
years one through three, respectively. Revenues recorded but not Allowance for Funds Used During Construction -
currently billed under the phase-in plan, plus a return of n such amounts, will be collected m_ years four Allowance for funds used during construction (AFC), a non-cash item, is de6ned in the applicable regulatory system of through eight via an additional rate increase in those years accounts as the net cost during the period of construction of e rate rder did not result in any adjustment to the carrying borrowed funds used for construction purnwes, including
"*!"*. of W If Creek under generally accepted accountmg I
nuclear fuel, and a reasonable rate on other funds when so used.
P""*'P **'
His.dlowance has been added to all major construction projects
- "'***"'" II"c me f r the years ended December 31, 1985,1984 and 1983 m.clude approximately $39.9, $ 19.7 and with semi-annual compounding. He annual average net AFC
$11.3 milli n f revenues, respectively, which are currently rate (net ofincome taxes) for 1985,1984 and 1983 was 9.38%,
9.72% and 9.81%, respectively.
suNect to refunhr a4ustment. Managemendes not Mew any signi6 cant amount of such revenues will be refunded or Depreciation - For 6nancial reporting purposes, the Com-adjusted.
omy uses the straight-line method to depreciate the original cost See Note 10 for Committments and Contingencies.
of property over its estimated remaining senice life, as deter-mined by independent engineers. He provision for depreciation 3.
Short Term Borrowings:
stated as a percent of original cost of depreciable property was At December 31,1985 and 1984, the Company had bank 3.4% for 1985 and 1984 and 3.3% for 1983.
credit arrangements in the amount of$91 million. %e Company Ineome Taxes - In the calculation of income taxes, the draws upon these sources to meet short-term cash requirements.
Company (i) uses hberalized depreciation for additions for 1973 Interest costs are based upon daily average outstanding kian through 1980 and ACRS beginning in 1981, and (ii) utilizes balances. %e maximum amounts outstanding during 1985 and other tax bene 6ts as permitted by the Internal Revenue Code, 1984 were $69 million on April 9,1985 and $66.5 million on consisting principally of differences in straight-line depreciation March 2,1984. The weighted average interest rate, induding and the deduction currently for interest and taxes capitali:ed for fees, was 10.3% for 1985 and 12.0% for 1984.
15
~
e Kansas Gas and Electric Company
- 4. Common Stock and Other Paid-in Capital:
5.
Cumulativ2 Preferred Stock:
Changes in Common Stock were as follows:
December 31, 1985 1984 Call Price Shares Amount (At W
(Thonaands of Dollars) D a rnber Authorized Outstanding of Dollars) 3,,,9,y 3
Balance Redemption January 1, not required -
1983........ 35,000,000 26,412,589
$383,781 except at the Additional shares Company's option:
sold.......
4,000,000 76,828 4%%, $100 par Employee Stock value; authori:ed Purchase Plan, and outstanding Employee Stock 82,011 shares.....
$ 8,201
$ 8,201
$110.00 Ownership Plan Serial, $100 par and Dividend value; authori:ed Reinvestment 255,000 shares:
Plan.........
1,259,377 23,7 %
4.28% series, Additional shares outstanding authorized... 15,000,000 45,000 shares...
4,500 4,500 101.00 4.32% series, Balance utstanding December 31'....
60,000 shares.
6,000 6,000 101.64 1983...
50,000.000 31,671,966 484,405 7 44* **'I***
Additional shares utstanding sold.........
3,000,000 49,255 150,000 shares...
15,000 15,000 104.95 Employee Stock Serial, without Purchase Plan, par value (Note):
Employee Stock
$8.66 series, Ownership Plan utstanding and Dividend 300,000 shares...
30,000 30,000 106.50 Reinvestment
$63,701
$63,701 Plan.........
1,852,468 27,446 Total Balance 984 50,000,000 36,524,434
%1,106
- ,{,
Additional shares
"* f
- );
sold.........
2,000,000 38,620 Employee Stock outstanding Purchase Plan, 520,000 shares....
$13,000
$13,000
$ 26.20 Employee Stock
$8.125 series, Ownership Plan outstanding and Dividend 100,000 shares...
10,000 10,000 106.67 Reinvestment
$8'00 Plan 1,940,376 28,572
- g50, Iares...
15,000 Balance
$8.25 series, December 31, outstanding 1985.......
50,000,000 40,464,810
$628,298 100,000 shares...
10,000 10,000 102.75
$15.50 series, The Other Paid-in Capital represents the cumulative gain on outstanding the reacquired preferred stock and premium on initial sale of 300,000 shares..
30,000 30,000 107.75
$13.25 series, preferred stock.
in April 1985, the Company issued 2 million shares of com-150,000 shares.
15,000 15,000 none mon stock at $19.31 per share. Book value per share decn ased Subtotal.......
78,000 93,000 from $20.65 to $20.58, a 0.3% dilutive effect.
less: Stwities Common stock issues under the Dividend Reinvestment Plan, dee within Employee Stock Purchase Plan and Employee Stock Ownership Plan on a monthly basis do not materially affect book value per one year.....
2,000 15,000 share.
Total........
$76,000
$78,000 Noce: Senal Preferral Stai, uithout par tulue, has 6,000,000 shares authorial.
16
l l
%e $ 13.25 Series Serial Preferred Sterk may h2 redeemed on December 31, and after October 1,1987 at $100 plus unpaid accumulated 1985 1984 dividends, if any. ne dividend rate on the $13.25 Series will be
$13.25 through September 30,1987. From October 1,1987
%nds of Nian) through September 30,1992, the rate will be determined by a First Mortgage Bonds:
formula which is based on an average prime interest rate in the 9%% series, due 2005..... $
40,000 $ 40,000 year ending September 30,1987.
8K% series, due 2006.....
25,000 25,000
%e following preferred stock may not be redeemed prior to 5%% series, due 2007.....
21,940 21,940 the date shown below through the use, directly or indirectly, of 6% series, due 2007......
10,000 10,000 the proceeds ofindebtedness or of the issuance of stock ofequal 8%% series, due 2007....
25,000 25,000 or prior rank, at an effective cost to the Company ofless than the 8%% series, due 2008.....
30,000 30,000 amount shown (except in the case of the $8.25 Series for sinking Total First fund purposes):
Mortgage Bonds 526,440 536,440 Effective Other Img-Tenn Debt:
Series Date Cost Pollution control revenue bonds:
5%% series, due 2003...
15,000 15,000
$15.50 March 1,1986 15.50 %
Adjustable rate series,
$8.125 April 1,1988 8.125 %
due 1986...........
70,000 70,000
$8.25 July 1,1989 8.25 %
Adjustable rate series,
%e mandatory sinking fund or redemption obligations for due 2013...........
87,000 87,000 the various Series are:
Adjustable rate series, Annual due 2013...........
63,000 Period Number Adjustable rate series, Series Commencing Completion of Shares due 2014............
98,000 98,000 Adjustable rate series,
$2.42 April 1,1980 April 1,1999 40,000 due 2015..
79,500
$8.125 April 1,1989 April 1,2018 3,333 Securities held by Trustee-
$8.25 July 1,1986 20,000 adjustable rate series...
(2,815)
(18,533)
July 1,1987 50,000 16 July 1,1988 15,000 pmnussory note, due 1989..............
39,400 39,400 July 1,1989 15,000 t agreems,
$15.50 April 1,1987 April 1,1991 60,000 due 1986..............
28,800 50,000
$13.25 October 1,1988 October 1,1992 30,000 Revolving bank loan, Amounts related to shares to be redeemed within the next year due 1990..............
100,000 50,000 have been shown as a current liability. Purchases of the $2.42 Revolving bank loan, and $8.125 Series in excess of the minimum can be used to due 1991............
50,000 50,000 satisfy future minimum requirements.
Bankers acceptance All sinking fund redemptions will be made at $100 per share agreement, due 1986.....
23,000 (except for the $2.42 Series at $25 per share) plus unpaid Other long-term agreements..
1,245 714 accumulated dividends.
Unamorti::ed premium ne embedded cost of preferred stock was 10.06% for 1985 and discount - net......
(50)
(17) and 9.86% for 1984 and 1983.
Total Other Long-Term Debt......
629,080 464,564 6.
Iong-Term Debt:
Subtotal...............
1,155,520 1,001,004 Less: Securities
- DecemM1, due within one year 108,100 10,000 1985 1984 Total................
$1,047,420 $ 991,004 W "'""d' S N I"")
First Mortgage Bonds:
Required redemptions and sinking fund payments for 1986 3 %% series, due 1985..... $
10,000 through 1990 amount to $108.1, $38.3, $20.8, $160.2 and 3%% series, due 1986......
7,000 7,000
$120.8 million, respectively. %e redemption requirements for 16% series, due 1986-1996..
25,000 25,000 1989 and 1990 would be increased by the amounts of the $87 10%% series, due 1987...
30,000 and $98 and $79.5 million adjustable rate series, respectively, in 16%% series, due 1987....
30,000 the event that the irrevocable letter of credit agreements are not 14%% series, due 1987-1991.
30,000 30,000 extended or other arrangements for collateral are not made.
13H% series, due 1989..
100,000 100,000 First Mortgage Bonds may be issued in additional amounts, 4%% series, due 1991....
7,000 7,000 limited by property, earnings and other provisions of the Com-14.05% series, due 1991 30,000 30,000 pany's Mortgage dated as of April 1,1940, as supplemented.
14%% series, due 1991 20,000 20,000 Electric plant is subject to the lien of the Mortgage except for 5%% series, due 1996.....
16,000 16,000 transportation equipment.
8M% series, due 2000.....
35,000 35,000 The 6.8% series, due 2004, and the 5%% and 6% series due 84% series, due 2001......
35,000 35,000 2007 are pledged as collateral for Pollution Control Revenue 7%% series, due 2002.
25,000 25,000 Bonds issued by Kansas municipahties.
6.8% series, due 2004..
14,500 14,500 17
i Kansas Gas and Electric Company Proceeds of the $63 million adjustable rate series, due 2013, any time without penalty. He weighted average interest rate, were placed in a trust account to be used together with invest-includmg fees, was 9.3% for 1985 and 12.4% for 1984.
ment earnings from such proceeds, to retire the $70 million ne bankers acceptance agreement is to expire February 28, adjustable rate series in June 1986. Proceeds of the remaining 1986. ne agreement enables the Company to borrow up to $25 four adjustable rate series were used to refund certain First million by collateralizing its coal and fuel oil inventories at rates hiortgage Ik>nds initially pledged as collateral for Pollution Con-based upon the banks' discount and acceptance charge. %e trol Revenue Ik>nds issued by Kansas municipalities, pay costs weighted average interest rate, including fees, was 9.1% for 1985 incurred on existing pollution control facilities, and establish and 11.4% for 1984.
special interest accounts with the tr tstee which are pledged for A revolving underwriting facility agreement was entered into debt service. %e balances were de osited with the trustee and on December 19,1984 and expiresJuly 1,1988.%is agreement invested pending construction of additional pollution control enables the Company to sell promissory notes or borrow from facilities. He letter of credit agreements with respect to such international banks in an aggregate amount of up to $100 mil-series permit extensions on an annual basis upon mutual agree-tion. The Company did not utili:e this agreement in 1984 or ment of the banks and the Company.ne variable interest rate is 1985.
determined on the basis of prevailing market rates for debt
%e embedded cost of long-term debt for 1985,1984 and instruments oflike tenor and quality. The following information 1983 was 9.07%,9.80% and 9.45%, respectively.
is applicable to these issues:
7.
Finance Subsidiary:
Weighted Kansas Gas and Electric International Finance N.V. is a Ixtrer of Credit Average Net wholly-owned offshore finance subsidiary with an original capi-Description Expiration Date Interest Rate tal investment of $13.5 million. He subsidiary was formed to 1985 1984 permit the Company to secure Eurodollar funds (See Note 6).
Series 8.
Retirement Plan:
due 1986
$70 million June 18,1986 5.8%
6.3%
ne Company has a non-contributory retirement plan for all employees. The total cost for the years 1985,1984 and 1983 was Series
$3.7, $3.1 and $2.2, respectively, including amortization of due 2013
$87 million December 2,1989 5.8%
6.0%
unfunded past service cost over 30 years. Of these amounts,
$2.0, $2.2 and $ 1.3 million, respectively, were included in plant Series construction costs. He Company's policy is to fund pension due 2014
$98 million November 3,1989 62%
6.5%
costs accrued currently.
Series Actuarial Present Value of Benefits due 2015 at a 7.5% Assumed Rate of Return November 30,1984
$79.5 million August 15,1992 6.2%
Vested participants
$39.7 million S#
Non-vested participants 4.1 million e 2013
$63 million December 17,1990 7.6%
Total
$43.8 million 1.ong-term debt has been reduced by funds (plus accrued hiarket value of net assets available earnings) held by trustees for future construction expenditures.
for benefits
$55.0 million The construction fund investment will be withdrawn upon ne above data is as of the latest actuarial evaluation.
incurrence of qualified expenditures.
9.
Income Taxes:
The specialinterest accounts are invested and used for interest payments and subsequently replenished up to the original The effective Federal income tax rates differ from the amounts account balances of $22.245 million.
computed by applying the Federal statutory rates to income ne 16h% promissory note due hiay 1,1989, was issued to a before Federal income taxes. The reasons, with related percent-wholly-owned finance subsidiary, Kansas Gas and Electric inter-age effects, are:
national Finance N.V. which is accounted for on the equity 1985 1984 1983 method.This note was issued in exchange for proceeds of $39.4 Statutory Federal income tax rate..... 46% 46 % 46 %
milhon imttally received by this subsidiary in connection with its Add (Deduct) income tax effects of:
issuance of $40 million of guaranteed notes in the Eurodollar Allowances for other funds used market. %e Company has also issued First hiortgage Bonds during construction.
(23) (23) (20) 15M% series due hiay 1,1989, in the amount of $40 million, to a Phase-in revenue (3) trustee to be held on a standby basis as ultimate collateral for the Depreciation timing differences 1
1 1
guaranteed notes issued by the subsidiary.
Taxes and pensions capitali:ed (1)
The credit agreement, which expires on J uly 8,1986, enables
^* "i "'I " I the Company to sell up to $50 million in commercial paper investment tax credit (1)
(1)
(1) supported by a bank letter of credit or obtain certain revohing other items-net (no one item credit loans. He weighted average interest rate, including fees, makes up more than 2 L) 2 was 8.9% for 1985 and 11.2% for 1984.
^5L 23 % 25%
He Company has two revolving bank kuns. One loan, due Effective Federal income tax rate 2
1990, for up to $100 million is comprised of a revolving credit kian until September 1,1986, followed by a four-year term loan.
A second k>an, due 1991, enables the Company to bot row up to
$200 million on a revolving credit basis until hiay 31,1987, followed by a four-year term kun. Both kuns may be repaid at 18
Income taxes as recorded in the Statements of Income are:
1985; however, no decision has been made. %e Company is not 1985 1984 1983 currently able to determine the impact, if any, this will have on g
gg the future operation of Wolf Creek; however, in the opinion of Operating expenses the Company the outcome would not have a material adverse Currently payable -
aEcct on 6e Company.
Federal.......
$(1,749) $ 1,7%
in February 1986, a class action complaint was fled m, the U.S. District Court for the District of Isansas against the S
256 II DeferretE IUe'ral.$.
32,408 34,937 2,29 Company, several current and prior directors and officers of the Company and others, alleging violation of Section 11 of the
- State 4,739 5,498 4,449 Investment tax Securities Act of 1933 in c nnecti n with the sale of 2,000,000 credit - net........
(1,052) 2,082 4,252 shares of the Company's common stock in June 1983, at a price to the public of $ 19.625 per share. He complaint alleges that the Total............. 36,095 41,024 39,903 prospectus for the sale of the shares was false and misleading Other income and deductions:
because it failed to adequately describe material adverse facts and Currently payable -
circumstances affecting the Company in connection with the Federal.............
1,722 917 construction of Wolf Creek and the Company's ability to State.............
271 144 recover through rates its investment in Wolf Creek. %e Deferred - Federal.....
(4,164)
Company has not yet filed a response to the complaint, but
- State (656) believes it to be without foundation.
Total..............
(4,820) 1,993 1,061 Proposed Changes to Financial Accounting Standards Board Statement No. 71 -Be accounting standard related I"C * * *
- specifically to public utilities and certain other regulated enter-expense - net... $31,275 $43,017 $40,964 prises is promulgated by Financial Accounting Standards Ibard Deferred income taxes Statement No. 71 (FAS 71). The Financial Accounting Stand-consist of:
ards Board (Ibard) has issued an Expisure Draft pronning Accelerated depreciation
$43,257 $11,006 $ 9,534 certain amendments to FAS 71. He amendments, if adopted, AFC - borrowed..
23,012 27,722 19,792 wmld become effective for fiscal years beginning after December Overheads capitali:ed -
15,1986 with retroactive application for prior transactions. ne net 4,118 4,786 2,698 Exposure Draft proposes amendments to the accounting for: 1)
Net operating tax loss (33,705) the phase-in of rates associated with the cost 3 of new generanng Test energy for plants,2 ) abandonments of partially completed generating plants Wolf Creek - net (4,144) and 3) disallowances of costs associated with newly completed Other - net (211) (3,079) 717 generating plants. ne propised amendments, if adopted in their present form, could have a significant adverse impact on the Total............ $3 2,3 2 7 $40,435 $32,741 Company's financial statements due to the revisions proposed in At December 31,1985, the Company has unused investment the accounting treatment of plant costs. Under a hteral interpre-tax credits including those related to the Employee Stock tation of the proposed revisions, the Company s electnc plant m Ownership Plan of approximately $124 million available for sewice, c rnm n sr ek equity and book value could decrease y
carryforward to future years. If not utili:ed. the remaining carry, 40%, 58% and 58%, nspectively. In adJirion, the Compmy's l
forward credits will expire in the years 1992 through 2000 in the retained earnings could be a deficit. However, until such time as amounts of $1, $14, $20, $16, $13, $17, $15, $20 and $8 the Ibard holds its scheduled public hearings on the Exp>sure million, respectively. Additionally, the Company has a loss car-Dr ft in June of 1986 and any amendments to FAS 71 are ryforward of $76 million, which, if not used, will expire in the adopted, any determination of the specific impact such amend-year 2000. nis loss has been applied for accounting purposes in ments m y have on the Company are considered by management t be preliminary and subject to material change.
the calculation of the Company's 1985 deferred income tax provision.
Nuclear Insurance - The Price-Anderson Act ( Act) cur-He Company has not been allowed by the KCC to record rently limits the public liabihty of an owner of a nuclear p>wer deferred income taxes on certain items (primarily payroll and plant to $650 million for a single nuclear incident. He Wolf property taxes, pensions, and removal costs) prior to May 1983.
Creek Owners' have purchased the maximum available private
%e cumulative net amount ofsuch tirning differences for which insurance of $ 160 million and the balance is provided by indem-deferred income taxes have not been p avided is approximately nity agreements with the Nuclear Regulatory Commission. He
$12 million as of December 31,1985.
Wolf Creek Owners are jointly and severally subject to a retro-sgrtive assessment of up to $5 milhon ($2.35 million, Com-
- 10. Comnu.tments and Contingencies:
pany's share) in the event there is a nuclear incident involving any He construction budget (exclusive of nuclear fuel) for 1986 is of the nations' licensed reactors. There is a limitation of $10 approximately $35 million.
million ($4.7 million, Company's share) in retnispective assess-In Jtnuary 1985, intervenors in operating license proceedings ment in any one year. %e Act is schedukd to expire in 19M7 and and others petitioned the U.S. Court of Appeals for the District Congress is considering several mahfications to the Act. He of Columbia C.rcuit (Court of Appeals) to overturn a rule Company is unable to preact the effect such actions may have adopted by the NRC in 1984 which eliminated the fmancial on the Company's potential liability.
quahfications of applicants as a matter for consideration when ne Company carries proivrty insurance in amounts of determining whether to issue an operating license for a nuclear approximately $1 billion with a combination of the "nuckur generating facility. %e Company and others have intervened in insurance pools" and Nuclear Electric Insurance Limited this case in support of the NRC's authority to adopt this rule.
(NEIL), which provides insurance coverage against rronrty Oral arguments were heard by the Court of Appeals in October damage to nuclear generatmg facilities ne Compmy also carries 19
m l
l Kansas Gas and Electric Company 1984 additional insurance with NEIL to cover the costs of replacement power during prolonged outage of a nuclear unit. In the event of a 4th 3rd 2nd 1st claim by any member of NEIL under the above coverages, the Qtr.
Qtr.
Qtr.
Qtr.
Company may be subject to an assessment if k)sses exceed L% ting premiums, reserves and other NEIL resources. As of December Revenues
$84,734 $131,588 $95,599 $98,832 31,1985, the maximum assessment to the Company is approx-Operating imately $8 million.
Income 14,409 30,207 16,955 17,801 See Note 2 for rate matters.
Net income 25,162 41,391 27,365 27,940 Eam
- 11. Joint Ownership of Utility Plants:
g Company's Ownership at December 31,1985 Common in.
Inmt.
Stock 21,344 37,576 23,500 24,075 Service ment in Accum.
Per-Average Shares Date.
Million.
Depr.
(Mw) cent Outstanding 36,509 35,056 34,499 32,729 12 Cygne June Earnings Per
- 1(a) 1973
$ 123
$50 343 50 Share
$ 0.58 $ 1.07 $ 0.68 $ 0.74 la Cygne May nese quanerly amounts are unaudited, but in the opinion of
- 2(a) 1977 118 38 315 50 the Company, include all adjustments, consisting only of normal Jeffrey July recurring accruals, necessary to a fair presentation thereof.
- 1(b)..
1978 61 14 132 20 Jeffrey May Market Prices and Dividend Rates of Common Stock:
- 2(b) 1980 60 11 134 20 High/ low Market Price Dividends Jeffrey May Common-NYSE 1985 1984 19851984
- 3(b) 1983 86 8
136 20 First Quarter 19 % 16% 19 15 %
$.59 $.59 WolfCreek Sept.
Sec nd Quaner 19 % 16% 16 12 %
.59
.59
- 1(c) 1985 1,390 15 530 47 Eird Quarter 19 % 10% 17 % 12 %
.59
.59 (a) Jointly owned with Kansas City Power & Light Company.
Fourth Quarter 14% 9 % 18 % 16
.295.59 (b) Jointly owned with The Kansas Power and Light Company, ne Comp ny had 52,252 common uockholders as of Central Telephone and Utilitier, Corp. and Missouri Public December 31,1985.
Service Company.
(c) Jointly owned with Kansas City Power & Light Company
- 13. Supplementary Information to Disclose the Effects and Kansas Electric Power Cooperative, Inc.
of Changing Prices -(Unaudited):
Amounts and capacity represent the Company's share and are The estimates of the effect ofinflation on the operation of the financed by the Company. %e Company's share of operating Company, as set forth below, were prepared on bases prescribed expenses of plants in ser ice are included in the operatmg by the Financial Accounting Standards Board's Statement No.
expenses on the Statements of income.
33 (FAS 33), " Financial Reporting and Changing Prices" (as amended). His statement requires adjustments to historical
- 12. Quarterly Financial Statistics (Unaudited):
costs to estimate the effects that ' specific prices (Current Cost)
(Thousands of Dollars, cxxpr per share amounts) have had on the Company's results of operaticxis. %is data is not 1985 intended to serve as a substitute for earnings reported on a historical cost basis. It does offer some perspective of the approx-4th 3rd 2nd 1st imate effects of inflation rather than a precise measurement of Qtr.
Qtr.
Qtr.
Qtr.
these effects.
Operating Estimated property, plant and equipment (plant), primarily Revenues
$110,705 $115,608 $89,810 $94,663 consisting of plant in service and construction work in progress, Operating was determined for current cost by applying the Handy-income 19,716 26,567 13,499 17,221 Whitman Index of Public Utility Construction Costs to each Net income.
8,198 32,0tM 27,389 30,081 major class of plant. Current cost is an estimate of the cost of Earnings currently replacing existing plant. The resulting adjusted data for Applicable to plant is not indicative of the Company's future capital require-Common Stock 4,681 28,547 23,872 26,277 ments because the actual replacement of existing plant will take place over many years and is not likely to be a reproduction of Average Shares Outstanding 40,450 39,797 39,331 36,898 presently existing pbnt.
Earnings Per Share.
$ 0.12 $ 0.72 $ 0.61 $ 0.71 20
SUPPLEMENTAL STATEMENT OF INCOME ADJUSTED FOR CHANGING PRICES For the Year Endal Dournber 3 r, a9 3 8
Current Out Conventional Average Historical Cost 1985 Dollars (Thousands of Dollars)
Oper: ting revenues....
$ 410,786
$ 410,786 Fuel....
103,747 103,747 Purchased power...
30,180 30,180 Depreciation........
44,543 101,673 Amorti:ation of nuclear fuel..........................
6,118 6,168 Other operating and maintenance expense.................
I13,100 113,100 income tax expense - net 36,095 36,095 Interest expense - net.........
60,822 60,822 Other income and deductions - net.
(81,551)
(81,551)
Subtotal 313,054 370,234 Income from operations (excluding reduction to net recoverable cost).....
$ 97,732
$ 40,552 Increase in specific prices (current cost) of property, plant and equipment held during the year *............
$ 76,007 Reduction to net recoverable cost (20,162)
Effect of increase in general price level.........................
(116.865)
Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost....................
(61,020)
Ccin from decline in purchasing power of net amounts owed.
48,191 Net
$ (12.829)
Net assets at year-end at net recoverable cost
_$ 801.362
- At Doumber 3 r, s 9 3, current cost ofutility t> Lint net ofaccumulatald@ronanon uns $3,24 :,9 0,000, uhile historicalcost or rut cost ranterabic 8
6 through dermation uns $2,132,on,ooo.
The accumulated depreciation for current cost was developed significant amounts oflong-term debt outstanding which will be by a pplyit g, for each major class of plant, the same percentage paid back in dollars having less purchasing power and, therefore, relationship that existed between gross plant and accumulated for purposes of these calculations, has a net gain from holding t
depreci; tion on a historical basis to the respective adjusted plant monetary liabilities in excess of monetary assets.
data.
As allowed by FAS 33, items in the Income Statements, other Depreciation expense was determined by applying the Com-than depreciation expense, were not adjusted. ne cost of fuel pany's depreciation rates to the respective indexed plant used in electric production was not adjusted b&ause the effect on amounts.
earnings was not material due to the relatively short turnover He regulatory process limits the Company to the recovery of period between the incurrence of these costs and their recovery the historical cost of service in its rates. nerefore, any excess of through the fuel adjustment clause.
the value of plant under current cost must be reduced to the net
%e regulatory process limits the amount of depreciation recoverable cost, which is historical cost. He amount of this expense included in the Company's revenue alk>wance and limits excess that accrued as a result ofinflation in the current year must utility plant in rate base to original cost. Such amounts produce be reduced to net recoverable cost.
cash flows which are inadequate to replace such property in the The Company, by holding assets such as receivables, prepay-future or preserve the purchasing power of common equity ments, s.nd inventory, suffers a kiss of purchasing power during capital previously invested. While this effect is partially mitigated periods of inflation because the amount of cash received in the by the benefit derived from holding long-term debt, the Com-future for these items will purchase less. Conversely, by holding pany has a net purchasing power loss which is experienced by the monetary liabilities, primarily long-term debt, the Company common shareholder and can only be overcome as a result of benefits because the payment in the future will be made with adequate rate relief.
nominal dollars having less purchasing power. %e Q3mpany has 21
y Kansas Gas and Electric Company FIVE YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA ADJUSTED FOR EFFECTS OF CHANGING PRICES For tle %urs Ended IAmnlu 3 1985 1984 1983 1982 1981 (in Tbounds of Awrage n>8 Dollars) 5 Current cost informatiom Income from operations (excluding reduction to net recoverable cost)
$ 40,552
$ 83,412
$ 76,036
$ 52,704
$ 37,162 Income per common share (after dividend requirements on preferred and preference stock)...
0.67 1.95 1.99 1.57 1.67 Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost
$ (61,020)
$(30,634)
$(23,113)
$(14,335)
$ (76,772)
Net assets at year-end at net recoverable cost.
$801,362
$760,023
$682,803
$572,095
$ 447,944 Generalinformation:
Gain from decline in purchasing n>wer of net amounts owed
$ 48,191
$ 45,003
$ 38,369
$ 36,380
$ 78,222 Cash dividends declaral per common share 2.065 2.44 2.45 2.40 2.44 Market price per conunon share at year-end
$ 14.13
$ 17.87
$ 18.63
$ 20.48
$ 17.59 Average consumer price index 322.2 311.1 298.4 289.1 272.4 Auditors Opinion To the Stockhokiers and the Board of Directors of Kansas Gas and Ekrtric Company:
We have examined the balance sheets of Kansas Gas and Ekrtric Company as of December 31,1985 and 1984 and the related statements of income, of retained earnings, and of changes in financial position for each of the three years in the period ended December 31,1985. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing pnxedures as we considered necessary in the circumstances.
In our opinion, such financial statements present fairly the financial position of the Company at December 31,1985 and 1984 and the results of its operations and changes in its financial position for each of the three years in the period ended December 31,1985, in conformity with generally accepted accounting principles applied on a consistent basis.
Kansas City, Missouri February 11,1986 Deloitte Haskins & Sells Management Statement of Responsibility for Financial Statements
%e management of Kansas Gas and Electric Company is responsible for the financial statements, notes thereto, and other information in this report. The accompanying financial statements have been prepared by management in accordance with generally accepted accounting principles consistently applied. He accounting system is in accordance with the Uniform System of Accounts prescrilwl 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 ofinternal accounting controls, monitored on a regular basis by the internal audit staff of the Company. %e system ofinternal control is complemented by a set of accounting policies and pnwdures which provide the necessary guidance neetkd to institute effective internal control.
He IToard of Directors maintains its oversight responsibility through an Audit Committee, consisting of three outside directors. %e Committee meets with Management, the Internal Auditors, and the Independent Auditors in connection with its review of matters relating to the Company's fmancial renming; the Company's Intemal Audit Program; the Company's system of internal accounting controls; and services of the Independent Auditors. He Committee meets with the auditors without management present in order to assure independent treatment of matters brought to its attention. He Comnuttee also recommends to the Directors the selection of Independent Authtors.
Wichita. Kansas E. D. Prothro February 11,1986 Controller and Assistant Secretary 22
COMPARATIVE ELECTRIC STATEMENTS Annual Compound Growth Rate 5
10 1985 1984 1983 Year Year Electric Operating Revenues (Thuands):
Residential...................
147,183 $
147,547 $
142,029 8.2 13.3 Commercial.............
100,651
%,304 88,976 8.6 12.1 Industrial..
129,313 131,080 115,413 6.7 13.0 Public street and highway lighting..
4,241 4,305 4,080 11.1 12.5 Retail rates 381,388 379.236 350,498 7.8 12.9 Wholesale rates...
23,873 25,294 41,390 ( 5.0) 7.6 Total sales of electricity...................
405,261 404,530 391,888 6.7 12.5 Other.
5,525 6,223 1,165 39.6 20.1 Total electric operating revenues..
$ 410,786 $ 410,753 $ 393.053 6.9 12.5 Sales in Kilowarthours (Tbcands):
Residential.......
2,063,973 2,114,880 2,098,971 ( l.0) 2.4 Commercial....
1,629,227 1,586,723 1,527,475 2.0 3.1 Industrial................
2,694,588 2,750,126 2,454,486 (.9) 1.7 Public street and highny lighting..........
56,817 63,243 65,292 ( 2.4)
(.3)
Retail rates 6,444,605 6,514,972 6,146,224 (
.3) 2.2 Wholesale rates..........
983,983 925,966 1,114,674 ( 5.6)
.5 Total kilowatthours soki..
7,428,588 7,440,938 7,260,898 ( 1.1) 2.0 Customers at End of Year:
Residential......
220,516 217,510 213,819 1.4 2.0 Commercial.....
20,206 19.853 19,554 1.0
.7 ladustrial........
4,542 4,574 4,523 3.0 6.0 Public street and highway lighting 715 690 655 8.1 8.4 Retail rates 245,979 242,627 238,551 1.5 2.0 Wholesale rates..........
38 39 40 (17.9)
( 8.9)
Total electric customers................
246,017 242,666 238,591 1.4 2.0 Residential:
Average kilowatthours per customer.
9,435 9,812 9,901 ( 2.5)
.3 Average revenue per customer
$672.85
$684.54
$669.%
6.6 11.0 Average revenue per kilowarthour 7.134 6.98&
6.77&
9.3 10.7 Kilow tthours Generated and Purchased (Tbuands):
Generated (nct after station use) 6,506,528 7,194,861 6,806,286 ( 3.9)
.5 Purchased......
1,590,515 822,000 1,128,312 24.9 15.6 Total available 8,097,043 8,016,861 7,934,598 (
.9 )
2.1 Company use, line kiss, etc.
668,455 575,923 673,700
.8 3.7 Total kikiwatthours soki 7,428,588 7,440,938 7,260,898 ( l.1) 2.0 Average BTU per Net Kilowatthour Generated i1,184 11,161 10,979
.5
.3 Average Fuel Cost per Million BTU
$1.54
$1.86
$1.87 3.0 10.2 Pow r Resources (Megauurts)
Avail:ble capacity 2,097 2,099 2,160
.7 2.0 System peak responsibility 1,612 1,633 1,700 ( l.4) 1.9 Reserve capacity.
485 466 460 10.4 2.5 Utility Plant at Original Cost (Thousands):
Beginning of year...
$ 2,282,6% $ 1,922,942 $ 1,668,929 15.9 16.9 Capital expenditures 212,440 364,823 262,520 3.7 9.2 Retirements 12,459 5,069 8,507 26.0 18.4 End of year 2,482,677 2,282,6 %
1,922,942 14.4 16.0 Accumulated depreciation..
350,630 293.683 265,739 11.8 12.0 Net utility plant
$ 2,132,047 $ 1,989.013 $ 1,657,203 14.9 16.8 Employees at Year-end 2,513 2,277 2,016 10.0 6.9 23
Kansas Gas cnd Electric Company Key Numbr to Bulk Rate P.O. Box 208 U.S. Postage Wichita, Kansas 67201 PAID Permit 165 Address Omatsm Requetaf Raurn Nage Guaranrad Wichita, KS DIRECTORS
- C.q. Chandler (1974)
Terence J.Scanlon (1980)
(1,4,5) Chairman of the Burd, First Nananal (2,3,4) Intestor and Ibehper, Wiclura Frank J.Becker (1981) arrJc in Wichira (1,4) Chairman and Chief Exeunte Offar, Marjorie 1. Setter (1980)
Rrl<cr 0,3 war.on and First Narmna! Rmk &
Robert T. Crain (1981)
(4) Nident, Serrer and Associarcs, Inc.,
Tnur Co.. d Drnado, KS (5) Cram Raziry Onnluny, h Smcc, KS Adternsing and PuNic Relanons, Wi* ira Glenn Biggs (1986)
Ralph P. Fiebach (1%7)
Donald C.Slawson (1983)
(6) N Chairman of the hrd, interFirst flank, Rarrei Chairnan of the Burd of the Onnpany, (3) Chamnan of the Burd and Niin, San Anemio, TX Wetaa Slauson Owntunies, Wichira Floward Brenneman (1985)
Ralph Foster (1970)
Dr. Newton Smith (1985)
Tresan and Chief Exaunte Offu,, Hessum (4) Vice Nident - Gmerar Gurael of the Physdan, Arkansas Gty, KS (apwatum, Hessum, KS Onnpany, Wichira lawrence E.Walsh (1986)
A. Dwight Button (1976)
Donald A.Johnston(1980)
(6) Arrorney arJ Raired Faferal Dtstrict Onot (4,2 4) Renrol Chainnan of the nurd, F<nath (2,3) Ongware General Manager, Maupintour, Judge, Oklahoma City. OK Fmancial Ono, Wichtra Inc., laurence, KS
- Year elected and committee Wilson K. Cadman (1978)
Russell W. Meyer, Jr. (1982)
"A""*"***
43 Chairman of the hrd and Preident of the (5) Chairman and Chief Exaunte Offurr, Gwsmy. Wichaa Cessna Aircraft Onnpany, Wielura Committees:(1) Exaurise; (2) Compertsanon, (3) Audir; (4) Shareholder Relations; C.T. Carter (1968)
James J. Noone (1986)
(5) Nominating;(6) Spxu! Litigarsm (i,3) Renraf Vie Nident, Pipeline (6) Arrenney and Reared Administrante Judge for Transputaram, Atlantic RidfieLi Onnum.
the Dismer Gnar of Salgsck Gunty, Wichita in4pendence, KS OFFICERS Robert L Ri es,52*
Richard D. Terrill,31 J. F. Klassen, 56 camp Vu Ndw Saverary Assistant Tnusurer Wilson K. Cadman, 58*
Ralph B. Foster,57*
W. R. Whitmer,52 Joe R. Gibbens,40 chamnan of the aura an,i Naw vu cresaw - ameral amns,i Tra2 surer Assistant sa>.sary Kent R. Brown,41*
Glenn L Koester,60*
Verna L Ridgeway,58 cmme u Naw vu Nacnr. Nucian Amnant Vu Nuent. G-Affam v
Richard M. Haden,46*
William B. Moore,33 Jack Skelton,55 camp Vwe NJnt Va N aw-Fmara Assnstant omendler.
James S. Haines,Jr., 39*
E. D. Prothros 5,3 Michael A.Gayoso,37 Assurant oinendler
% cmme memivr.
on p vu Naw omendler cna A.wa, y STOCKHOLDER INFOR1411R ;a i Stockholder Records and Dividend Remvestment Annual Meeting Fiscal Agents KG&E Stockholder Records
%e annual stockholders' meeting Preferred Stock: Trannfer Agent -
P.O. Box 208 will be held May 21,1986, at the First National Bank in Wichita-Wichita, KS 67201 Alexander Auditorium, Fine Arts Registrar - Le Fourth National Phone: Kansas - Collect Center, Friersds University in Bank and Trust Company, Wichita.
(316)261-6640 Wichita. Proxies for this meeting will Common Stock: Transfer Agents Outside Kansas -
be solicited by the management. A
- First National Bank in Wichita 1-800 527-2495, Ext. 6640 proxy statement will be mailed to and First National Bank of Chicago; Other information stockholders about April 15,1986.
Registrcrs - %e Fourth National Vicki L. Ackerman Bank and Trust Company, Wichita, KG&E Investor Relations His report is prepared primarily and first Nanonal Bank of Chicago.
P.O. Box 208 for the information of company L sted N.Y.S.E. and P.S.E.; ncker Wich ta, KS 67201 stockhokt rs and is not transmitted in connection with the sale of any symid - KGE.
Phone: Kansas - Collect securities or ofter to buy any Fonds: Trustee, Registrar and (316) 261-6929 1
securities.
Paying Agent 7 Morgan Guaranty Outside Kansas -
l Trust Company of New York.
1-800-527-2495, Ext. 6929
_ _ _ _ _ _ _ _ _ _ _ _ _