ML20206E942

Kansas City Power & Light Co,1986 Annual Rept

ML20206E942
Person / Time
Site:	Wolf Creek
Issue date:	12/31/1986
From:	Doyle A, Withers B WOLF CREEK NUCLEAR OPERATING CORP.
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
WM-87-0110, WM-87-110, NUDOCS 8704140011
Download: ML20206E942 (76)

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i 1987 ANNUAllMEETING9 . . , #

4 CONTENTS . . #

n - The 1987 AnnualMeetingof;L  ;; Highlights of the Year ~. . . .1. . . . ."I'- >

' N StockholderswillbeheldonTues-9 . .

day, April 28,1987,at 10:00a.m.;in';T -

h Chairman's Letterand ) ..

the 4th floorauditorium of ther - '

(The %arin Review . . . . .; . 2-9 c . - - -

Companyh offices at 1330 Italtimore' -' 9 Fiw4. -ear<7tends v. . . '. . . . ., . . 10ill :

, Amnue, Kansas City, Missouri.:x , ,

a~- - ' ~ . - .

Sharehoklers of a.ccord on Marc. h 9,; m. - : Financial Statements . . . . . . . i12-17 .

1987, air eligible to vote at the meet-H ~

- 7

ing and willbe mailed a notice ofK lNdiesto Financials - ' ~ , 1

' meeting. pmxy statement and formt 4 Statements ' - - - - - " .117d2 ofPlay.

x ; .,; '

r x ..J '

.' Managements Discussioni; :E. -

=

INVESTORCONTACTS ... c and Analysis ". . . . . c. . . . . .J 23-25 :-. ' ,

Shareholder Accountinformation; , g . a.'i. - -

Sharrholder Relations Department;

^ Stock Psices and . . L , j ~

n

.(816) 556-20537

' - '?  :; ,

J Dividends . . . . . . . . . . .g . , . . 25.'( .

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Financiallnformation' : <

g < q : QYearSummaries ...i26-27'm -

Investor Relat ons L ,

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3_ ,,

'(816) 556-23122 -

f Boaniof Directors dnd Oflicers . 28 : ', ' C c- U

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s 9The Company.andService L ~ q 1 CORPORATE OFFICES 7 - - ,

m' e 1330BaltirnoreAienueL ^

Asea andShantholder -

- : .a _, .-

(Kansas City, Missouri 6dO5? _

- (Infuim.Ani ;; . Insids back cmer ; ~ '.

-T - .,(

I(816)556-2200. ^

. ~ . ' . . , .. -. : , , -

i. _.; Thisreport,includingthefinancial 9

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> statements contained herrin, has been Y; f%. '

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, & '_ T f^  ; -

ipreparedprthegenemlinprmationoff -

ishareholders ofKarnas Citynwer e x-

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1

- W Light Company, and is not intended to ' .M m -

u .  : induce, orfor use in connection with,": * = ~ ~  : n . ::

any' sale, ofer to sell, orsolicitation L ' ( g

n .

n ofan oferto buy,anysecuritiesof! _: >

W

, fthe Company.[ '~ ,

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OFiscalRecotery Progmm _

a Coalunits recordfourth consecutitwf. ; aMoody's raises First Mortgage

- implemented; significant satrings : year ofimprotements; IloffCreek sets!  ? Bond mtingsk^

. addetrd in OUM, constmction .  ; U.S. nucleargeneration record ;  :: - . . . .  : -

budgets . . .. a f8 employees elect earl l retirement -

alnterchangesales reach

- .. ..

CFreight costs louvred 38% under all-time high : b a 1986 earnings of$2.80 per commari; new mil transportation agreements; . .

.L , bshare, downfrom $UI pershare; 2 ateragefuelcosts dmp 21% to $1.05 a Commercialconstruction briskb iquality improtes'.

per million Blu 11,600 new residential connections, ,

customers set newpeak demandL Y

- g

~ ltrcent? - .

^

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. . . . , . ?lncrease~

1986 - fl985 J - (Decreasef _

Leal operatinginenues (000s) - . $ - 664,870; $ 596,621 ' i14: - >a Earnings anilable for common (000s) $ l " 86,485 i : $i133.254 : E(35.1) '

herage number of shares 30,942,149. 30,196,715) - t 2.5 - '

N lbr common share: . ..L7 .. .  ;, t --

Earnings 5- - 2.80 ' . . .$. ._4.41 f(36.5)% _- ", s, ,

Net non-cash cardits* - $ ~ - : 1.56 ' ;$? ^4.31 x . 1(63.8)J , W Dividends . $; ' 2.09 ' . $ - . ? 2.36 -4 f(ll.4) -"i_ '

^>

Book value $~ 27.79 , . .$ ~ 127.10 *

- 2.5 '

.. '75? ' ~ ' . ' 54 1 Dividendpayout(%) . .

L 38.9 ? ~# ~'

Constructrm expenditures (000s) . ' $. 72,386. !$1157,727s f(54.1)) _'T . -

Electric and steam heat plant (000s) ~ $2,899,668 J $2,831,884  ; 2.4 ;> , _

~ '

Return on year-end common . ... . ,, ,

equity (%) ._

10.1 J ' 15.9 , J (36.5) " '

Capitalization (9 total)**

Common equity . 41.5' - 38.5E -

9.71 w>

^

Preferred and preference stock 6.4 <

Long-term debt 52.1- ' 51.8 ;

Selected Statistics . .

^

,O ,

Kilowatt-hour sales (000s) '9,323,859- J 8,893,609 i 4.8 s 4 Itak load-summer (kw) 2,373,000  : 2,235,000- J6.2; w Itak kiad-winter (kw) 1,490,000 - 1,446,000 i 3.0 t ,

=

Fuel mix (%) .

Coal 73.8-  ? 86.7 -

Oil .4 . .4= <

m Natural gas .2 ! .7" Nuclear 25.6 - ' 12.2) ' .

herage electric fuelcost .

($/million Btu) $ 1.050' ~$; 1.333 f (21.2)

Numberofemployees 2,771 2,863: .' (3.2) , .

Number of stockholders 41,363 '49,338. < (16.2) :

' Allowance for funds used during construction and deferred Wolf Creek carrying i msts and operating expenses net of associated deferred income taxes and the de-terred cost of equity resulting from the MPSC rate pluse-in plan.

• • Exclusive of long-term debt and preferred and preference stock included in current ;

liabilities.

4 1

. _ ~

To Oua SHAREHOLDERS I

I l

l it also expressed deep concern that further steps be taken to reduce about our inability to secure timely the Company's costs, without ad- ,

and adequate rate telief. That con- wrsely affecting reliability of senice cern wasjusofied. last Aprils to our customers, so that we could f 7 Alissouri rate order granted the render that senice with minimal Company only $78.2 million of our recoune to increased rate Blings.

[ requested $187.1 million rate in- BYEARIXSUAthfER, some crease and ordered a seven-year veiy signiGcant events began to

~

.3 r% phase-in of the amount allowed. bolster our conGdence and acceler-

[ IN AIAY, faced with no other ate our expectations for an early trasonable choice, the Company fiscal recovery.

implenented a Fhcal Recovery Pm- IN,JUIX, after four years of Arthurf. Dov/, gram iuluirmg effort followed by strenuous com-

~

s a 24W reduction in 1986-88 petitive negotiations, the Company In retmsput,1986 trpresents a ymr Constmction Budgets; signed a 10-year Omnibus Rail of tmnsition and turnaroundpr our a a 31W reduction in coal Tmnsponation Agreement which Company. An adtene Missouri mie inventories; reduced, by 389, our rail freight on/cr ismed in early 1986 seriously a a 7.5% reduction in 1986-88 costs for delivery oflow-sulfur dimmed ou rfinancialposition, aliendy Operatingand Ataintenance Wyoming coal to our 51issouri and uvakened by an adtvne Kansas mie Budgets, exclusive of fuel; and Kansas generating stations. Effective on/er in late 1935. In Aprilreefaced a a 58% reduction in civic and irtroactively to April 1,1986, those the prospect of 3etvrely erodingfinan- charitable contributions. reductions will save the Company cial results and the needfor siginficant On Alay 6 our Board of Directors some $25 million a year and were additional mte reliefin both Missouri declared a common sto(k quarterly principally responsible for lowenng and Kaasas. Ilourter, as the yearpm- dividend of 50c per shair, a 15.25% our 1986 coal costs to $1.17 per i gir3 sed, ice took admntage ofsetvml reduction to an indicated million Brus,a 17% de-opportunities to ordure our costs and annual rate of S2.00 per [n May, faced cline from 1985 costs. l dmmatically impunt ourfinancial share. Cutting that divi- 1.with no other Upon completion of l fmrrn3ts. With a large auistfrom a dend was a difGcult deci- n'a3nnable choice, conwnion ofour Afont-l thriving and expanding Kamas City sion. However, after an the Company rose Generating Station l economy, u e nme believe the Company's intense assessment, the implemenled a next Spring from high- I finalircotvry can be achletvd mer the Board determined ahat Fiscal Recoreiy to low-sulfur coal opera-  !

nextfreyears u ithoutfurther mte such action was neces- Pmgram. tion, all of the Company's innease requests. sary for the Company to coal-Gird capacity will i LASTSPRING,our 1985 Annual gain a better competitive position then be fueled with low-sulfur coal, l Report spoke of reconl-high lesels for the future and to fix a new except our 12Cygne Unit # 1 which of residential and commercial con- course that wuuld be in the best was constructed and operates with a siniction in our area and the super- long-term interests of our share- wet scrubber. Ourlower rail freight latise operating performance of our holders, our customers and our rates under ihe new Agreement sptem facilities and employees. But, employees. The Board also directed haw enabled the Company to 2

1

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reduce its fuel costs and our ex-  ;

panded use oflow-sulfur coal will, f _

hopefully, allow us to avoid the ad-l verse impact of any possible acid l rain legislation. _

With a 1986 Wolf Creek nuclear fuel cost of 63r per million Btus, our 1986 sptem average delivered fuel costs decreased to $1.05 per "

million Btus,one of the lowest in #

ourindustry. j Wolf Creek con- l 1

tinued its outstand-Byearly SU1/liller, ing performance

p. -

1 Some rely and,in fact, set a w 'ia .

~

sigllif5 Cant (Telll5 new U.S. record for ~b _

hegan to hol3/er nuclear energy OUr Con) (IrllCe pnxluction. Its

! antlaccelein/c 8.923 billion gross OUr expectations Kwh output by

' f>ran early September 3 sur-

' [tscal n> cove 7y. passed the first-year commercial e c production of all other U.S. nuclear .s e

g" power plants. Significantly, during that first year the plant had an f astrage availability of 90NJ and [

employee-safety and plant-efficiency <* &  !

performances that surpassed nearly [( , ' '. ; ,,-[ l ewry goal established by the Insti- pl

}y tute of Nuclear Ibwer Operations, .

W*

including a heat efficiency rating of ,

9,808 Btus per gross Kwh gener-  ;

=

I ated, again one of the best in the industry. l At the same time, the overall per- Wdf Creek completed its initialyear ofcommercial opemtion on september 3 and

"' "" "#-'i*' U S ""'"#l"'li"'-J'""""' *'"I"# C'" -  !

formance of our coal-fired gener- erating nearls u billion kdowatt-houn, the plant um"'"~#'"' anidable 90P"""4 % of.I'""#"di""

the time and produced ating units improved for the fous1h 86.4% ofitsfullpawer c<.pabdits. In ful. WJJ Creek surp<wed nearly ewry operating gmd estab iahedfir neatum plants h the Institute of Xurlear Hirn Opnahons. Wilf Crrrk has consecutive year. Awrage unit avail- shmen itself one of the best of the 1118 licenvd nrulear units currently providing more than ability exceeded 839, establishing 16% of Cs. domestie clutricity.

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seserW opportunities for the Com- permits were issued during former winter peak set in 1985.

pany to reduce its embedded cost of 1986. Large conunercial con- a Kilowatt-hour sales to KCPL capital through redemptions and stniction (50,000 square feet or customers were significantly refinancings of higher cost debt, more) continued, with more higher than forecasted and,in

(

and preferred and preference than 38 million square feet fact, for 1986 incicased by 430 issues. SinceJuly 1986, the Company under way or targeted for com- million Kwh or 4.8% over 1985, has issued notices of redemption or pletion in our area by the end partially in wsponse to a return purchase of some $165 million of of 1990. By year-end, pn>jects to more typical summer weather those high-cost issues for an esti- wpresenting more than 15 mil- conditions.

mated net reduction in interest costs lion square feet of that new IN EARLY NOVE5tBER, taking and dividend senice ofover commercial construction had note of the Company's aggressive

$10 million per year. already selected heating and cost-cutting measures and favorable By OcrOBER, after cooling systems, and economic conditions, Ahxxly's raised reviewing our kical econ- anSas Cityi nearly 60% of that space its credit rmings on the Company's omy, customer growth, f>m3/>cring was s(heduled to be all-peak loads and energy economy was electric.

sales, we noted some accelemling and a Ahhough tempera-wry encouraging trends:

a Kansas City's pros-our high cuSlomer gnrirth was tures at the time of system peak were N

i pering economy was continuing, somewhat milder accelerating and our than normal, a new . _- ^

high customer growth was con- record high system peak tinuing. The Company's new demand of 2,373 Nlw was estab-residential connections for 1986 lished onJuly 28,1986, when l

l exceeded 11,600, breaking the the temperature nea< hed 98 E reconi set in 1985, and about It surpassed the previous reconi 30% were all-electric living high of 2,321 Alw which oc-units. Survers indicated that curred in 1983 at a temperature more than one third of the new of 103 E Adjustment of the

msidential customers were 1986 peak h>ad for nonnal wcath- fin,ryean ofinten siiv eflinis Imre /ruit in

! moving into the Kansas City er conditions and interruptible 1"IJ Th '" 'h' C"*P""J "K""/ " 10-J'"'

Omnibru Ibiil Transjmrtatwn Agreement.

metropolitan area from uther customer loads indicates a 7%e Agreement meant a 7NW redurtion in parts of the countiy. We ended nonaalized 1986 peak of about ""' "".ll"i #h' '"/"' d'li'*'J "/l""-*"ll"'

Wyomong aud, saving the Comfunny some the) cat with a 3.1% net gain of 2,382 Alw, repiesenting a giowth of sj5 millinn a year. 7he ag,erment' pun idn total customers. 2.9% over 1985's normalized peak K"'"'"/I'ubddy in opnating roal-fired unut ihr esample, Ilau thurn Statwn has a Constnittion in our at ea was load of 2,315 Alw.This non weather- been c onte,ted sa burn low-od/a, oud and continuing its record pace and related growth trend was further """" " "^'d'd'd '" be nan utol in hpnng $487, saving money as uYllas unemployment remained at a confirmed w hen a new wront high helping meet pnu,ble en e,nn, mental relative low 4.79. A record winter peak of 1,490 Alw was set in l'K"l""""-

17,000 residential building Nowmber, a 39 inurase oser ihe 5

, rized Company manpower is now rate increase request and notified

,. . capped at 2,826, with only 2,747 the Alissouri Commission that the

'hg,

permanent employees actually on the payroll as ofJanuary 31, the Company would accept the phase-in rates as allowed m the April order, lowest in the last fi e years. subject to cenain accounting stipula-e ,. es Thrre officers announced their tions to mitigate write-ofTs in accor-8,,sf

• retirement plans during the year: dance with reporting requiremems

• tre E Niiller,'licasurer,irtired

>/ e of the Financial Accounting Stan-e, e' October 31;J.A. 31ay berry, Vice dards Board.

a,

• % President-Commercial Operations, OFHER 1986 EVENTS, paral-8 a,

""'*$ took early retirement on December leling implementation of our Fiscal

, as

?

.g.. 31; and D.NI.1;mdes, Vice Presi- Recovery Program, sene to sustain 8 4"

• dent-Comraunications, our optimism for the w

a .< announced that he will y year-end, future.

%If Crea k operated so urliin itsfirstyar setire 51 arch 31,1987. our Fiscal a In October, a(ter that refueling originally planned}vr early IWii um stepped up tb begin in October: BEFORE YEAR- Recovery Progmrn working without a 1' ~ing refueling,52 tf the 193 fuel END President Reagan haN evolVCN, .5nfo wage increase since a wmblies comprising the reactor core were replaced, and crews also took admntage signed thc Tax Reform a new way ofdoing July 1983, incal of the shut down to perjbrm maintenance on Act of 1986. Although it NuS5 ness. 1613, representing major components. The plant went back on line in Durmher. will base some adverse our office workers, effects on the Company if major new executed a new 42-month labor First Niortgage Bonds to BaaI from constniction is requiied, the new contract similar to the piior Baa2, expressing confidence that tax law is expected to reduce the year's settlement with Local 412, the Compmy would be able to Company's corporate income taxes irpresenting our power plant suengthen credit worthiness mer by about $11 million in 1987 and employees.The new Agreement the next several years. S24 million in 1988,if no further tax with Incal 1613 increased wages BY LATE FALL, after studying law (hanges are made by Congress. 5% effective September 30, ihe results of our in-house evalua- BY YEAR-END,our Fiscal provided a one-time $2,200 sion of all Company fum tions, Recoverv Prograra had evohed from bonus per employee paid in methods and procedures, we con- a fixed determination to regain a 1986, and calls for subsequent cluded that total employ ment couhl firm financial footing into a new wage increases in the next three be ieduced by some 43 management way of doing business-a renewed years of 4%,4% and 3.5%.The positions. An F;nly Retirement Pro- conunitment to do esenthing Agreement also continues cur-gram was ofTered to management reasonable to reduce our expenses, rent pension benefit levels fbr a emplo)ees and resuhed in an to avoid asking for additional rate four-year term. As of this re-aneptance by 48, who ictired on im reases and to remain competiti e. port, the Company and Incal December 31,1986. We will miss ihe Because of our success in cuuing 1164, representing our trans-contributions of these employees; c osts internally and timely esents mission and distribution they repiesented nearly 1,600 years a con ing externally, we committed wo Lers, hase not reached a of KCPL experience. 'Iotal autho- to withdraw our pending Kansas settlement. Those employees 6

. . . ~ - ..

A L

I L

E

• hase been working without an to %1f Creek and to take over tions, and financial and ad-agreement since October 1982. responsibility for its operation, ministratiw matters related to a During ihe year, Elf Creek maintenance, repair, the'liojan Nucleai Plant for operated at sudi a record-high decontamination and decom- some 13 years. In addition, he is t-- level that its first refueling, orig- missioning. We are a member of the Board

.- g inally' planned for early 1987, most pleased to ,, olfCreek of Diiectors of the insti-was rescheduled for Fall 1986. repoit that, in Sep.

. Nuclear tute of Nudear Ibwer During that refueling outage, tember, Bart D. Opemting Opemtions, chosen for substantial maintenance was Withers, a nuclear Corporation was his specific technical f

F- performed, and the unit went indusupeteran incorporated; Bart expertise in nudear h back on line in December in with 30 years experi- D. Withers WS matters. Afterapproval h time to help meet winter ence, was elected electedits President by the Nuclear Regula.

demands. President and Chief and CEO. iory Commission and a By mid-year, Wolf Creek Nu- Executive Officer of the Kansas and .\fissouri clear Operating Corporation WCNOC. After ser ing West- Commissions, WCNOC replaced (WCNOC) was incorporated to inghouse for some 17 yean in Kansas Gas and Electric Company centralize the coordination various nuclear assignments, he as the NRC Operating Licensee and E among Wolf Creek owners of serwd as the senior officer in the Operating Agent for Elf Creek, management policies relating diarge of engineering, opera- effectiveJanuary 1,1987.

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}t ] f T' . c4:/ Q ~ Jd q.g' ,, i -w Although our Thral Recotrry Program nortailed monetary contributions to comm units and charity grousps. employees hatr responded u ith enthimastic personalintvitrment in the organi:ations. Ihr instance, nearly 60 employes mised nea.cly $6,wo in the Manh nfDur.es Team Wdk, an annual 20-mile trek to helpfight birth defits.

7

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a in early 1986, we filed with the in a 25% reserve margin or , a a special project team effort hiissouri Commission a plan to 20% capacity margin, based on to determine the feasibility phase out, by the the Company's installed of major rehabilitation of end of 1990, our /te Contf>any capacity of 2,937 hlw our four irtired Ilawthorn 80-year old central isengaged (530 51w nuclear,2,037 Station units, which are now station steam heating in an itH/ef>t/t Alw coal-fired and 370 32 to 36 years old and had operations in down- 5/udy to develo/> htw oil-fired combustion an aggtrgate coal-fired capa-town Kansas City. allernallrespr peaking capacity) plus bility of 250 Alw; and l We took that action fnnviding raf>arily 41 Alwofequivalent u a feasibility study of a waste-due to increased to meet />mfeeled capacity purchases. With to-energy project which maintenance costs ru3/omer loads. our annual peak h>ad might provide up to 40 Alw of the antiquated growth currently esti- of additional capacity.

facilities, a declining number of mated at more than 2% over If those studies show economic customers and inadequate rates. the next 15 years, the Company advantage, the projects'added The plan offers to convert pre- is engaged in an in-depth study generating capability could sent steam customers to on-site to develop alternatives for pro- effectively bridge the gap be-electric steam boilers or other viding capacity to meet pro- tween the Company's present electric heating equipment at jected inctrased customerloads. generating capacity and future Company expense and seeks an included, among numerous peak load requirements increase in retail steam rates of other studies, are through the mid 1990s and 22% annually during the phase- enable us to postpone major out period. new capacity additions.

m In late Nowmber, the Company

~

OUIt 1986 FINANCIAL announced that following termi- RESULTS,tchich reflect an $8.7 nation of steam heat production million after tax terite-off of a portion at our Grand Avenue Station, ofdeferred W>lf Cirek costs, show 1986 we intended to donate the build- earnings per atemge common share of

^

ing to the public to become a $2.80, a significant dropfmm the world class aquarium and per- $4.41 in 1985. !(oweirr, the quality of haps a tenter far water studies thme 1986 earnings teas the highest in in the U.S.The aquarium wouhl setemlyars. Tlee portion of non-cash complement a wcently an- ordits in those 1986 earnings tras 5

noum ed redevelopment plan $1.56, or 56% , a significant improw-by the Carley Capital Group to ment as compared to the 98% in 1985.

create a retail, residential and " " " ' ""

IN 1986, the Compan) became

, , I""5}'"j tourism showcase along the old Grand Arnue station has supplied more aggressive and more attuned d di" " ' " "

Alissouri ri erfront in Kansas {#"" ', "" 'Q to the demands of competition and City. distrin steam service, the Grand Old Lady the needs of our sharehoklers, our a Our 1986 summer normalized customers and our employees. We ri e r fs" t h." ""

peak load of 2,382 Alw resulted city's riterfront renend. are now firmly committed to pursue 8

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\\'ith our annualpeak load growth estimated at more than 2% oter the next 15 years, the Company is reviewing alternatitesfor providing capacity

l to meet loads. One study intrdies a specialprojnt team determining thefeasibility of major rehabilitation of thefour retired units at Hawthorn Station.

I

' ' olbportunities to be more efficient, statementsforfurther discussion. How- restorr the rate ofour common stock I

more productive and more competi- etrr, we now estimate that \%IfCreek dividend at an early date. The last tive as se move forward through urgtdatory disallowances would ursuit year s turnaround has set the course the second century of providing in an after tax write-offofabout SS7 and we believe it is trasonable to expect safe, reliable and reason- million ifrrconfedin that, with continued coopemtion by o ur able cost electric service. he lastyears 19S6. \% are c1.. rently regidatory commissions, we willbe able EAIUXTlIISYEAR, L furnamunti pursuing rrgidatory and to do so in the nearfuturr. Based on l with the coopemtion of the has set the courye judicial review ofcertain 1986 and ourfitv-yarfatvmble trends

,\lissouri Comminion, its . ,antiyour other \%If Creek disal- as indicated on thepilowingpages, l

sta)Jand interrenon, the nianagernent has towances in Kansas not your management has reneurd Company dismissed its n'newell oplitnisin included in that estimate. optimismfor the near and long- l applicationforjudicial in accordance with new termfuture ofKansas Cits Ibwer & l l for the near anti j nriew of the April.\lis- long-terrnfuture of accountingstandants,the Light Company.  !

souri rate onler punnant Kansas City Itneer company willbe required , , , , , , ,

to a Stipulation adding S? $,lght Company. to nront the write-offbej<ne some 5163 million of \%If .\ larch 31,1988, and may Creek jdant investment and defenrd elect to restate its 1986financials to A<-

costs to the Compann .\liuouri mte reflect the dnallmcances.

PROSPECTIVEIN, KCPL recog-C^"5"""" l U"' 0'""I "'" "E '"'

, base. These adjustments will mitigate,

"'" '? #I in part, write-olJs under accounting ni:es that 1987 willbe anotheryar of standants as prom ulgated bx the Finan- difficult and austerr tmnsition. How-

cial Anounting Standards Board. See etwr, we remain optimistic that cunent

- page 19 of thefootnotes to our)inancial trends will continue, enabling to to 9

bt & "" g i M g These graphic compansons demonstrate several favorable trends duiing the 1982 through 1986 period, which are leading the Company into 1987 and beyond:

/ !

L' W e .

L

, u RirMj @,W M ,

E During the last year, lower interest rates haw permitted the Com- -

,/

pany to reduce its embedded cost oflong-term debt owr 100 basis /~

g points to 8% , while our common equity capital ratio has increased i

from 36% in 1982 to 41.5% at the end of 1986. With the completion 4 '

~'j of Wolf Cirek in mid-1985, our internally generated funds, as a '

percentage of constmction expenditures, rose rapidly from 13.5% J.

m 1984 to about 181.2% in 1986. Although 1986 earnings are nat up to par because of the disappointing Missouri electric rate in-crease which commenced in May 1986, the quality of those earnings .

has already shown significant impmwment with the non-cash ei !

credits portion dropping fmm 98% in 1985 to 56% in 1986. "Jd ,

s c : a e,q ~

r

_a With these faverable trends in electric sales, reduced operating .

costs and constmction btirdens, impiowd imernal cash flow and higher quality of earnings, we look forward to steady improvement in the Company's financial ortlook over the next few years.

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11

Kaems Can 1%rr & Light Comlm")

Year Ended December 31 1986 1985 19 &1 (tAouwndd Operating Revenues . Electric $ 654,387 ' S 583,113 $ 570,558 Steam heat i 10,483 13,508 12,856 Total. 664,870 596,621 583,414 Operating Expenses' Operation w Fuel 145,451' 163,003 172,333 Interthange power (net) (39,159). (23,37I) (14,566)-

Other 123,525 109,255 83,057 Afaintenance 73,509- 70,841 57,092 Depreciation' - 84,177 '62,443 47,561-Taxes.(Sec statements)

Income _ 66,289 . 62,560 69,568

- General .- 64,951 59,891 55,74l' Deferred Wolf Crrek expenses (Ahte 2) (6,904) (14,344) -

'Ibtal 511,839 490,278 470,786 Operating Income i153,031 106,343 _ -112,628-Other Income and - Allowance for equity funds Deductions used during constmction .

(1,345) 64,590 78,415

. Deferred Wolf Creek carrying costs (Abte 2) 38,407 42,522. -

AlPSC rate phase-in plan (Note 2)' 16,714--

5Iiscellaneous-net ofincome taxes ' 744- ' (2,429) (4,293)

-Total- 54,520 104,683 74,122 Income Before

.207,551 -211,026 186,750 Interest Charges Interest Charges long-term debt -- .-97,747- 98,824 86,643 Short-term notes 1,299. 1,778 3,343 Aliscellaneous . .

1,868' I,365 1,273 Allowance for borrowed funds -

used during construction 179' (46,062). (55,950)

Total 101,093 55,905 35,309 Yeuly Results Net income (Note'2) - ..

106,458 155.121 151,441 Prefer >rd and preference stock dividend requirements 19,973- 21,867 21,917 Earnings available for common stock $ 86,485 $_133.254 5 129,524 Average number of common shares outstanding 30,942,149 30,196,715 28,887,407 Earnings percommon share S 2.80 $ 4.41 S 4.48 Cash dividends per common share S 2.09 $ 2.36 S 2.33 The accompanying Notes to Financial Statements are an intepal part of these statements.

12

. Kab,a, ca, wie ngr compacy December 31.

1986 '1985

' ASSETS uwwao Utility, Plant . Electric- $2,876,734 $2,809,467

' at onginalcost Steam heat -

~

22,934 22,417

(Notes 2,6 and 7) - .

Total .

2,899,668 2,831,884' less-Resents for deptrciation - 551,490 ~ 472,668 Net utility plant in service 2,348,178 ' 2,359,216 Constmction work in progress '23,039 ' 40,619

. Nuclear fuel, net of amomzauon .

of $26,293,000 and $7,796,000 ~ '8,231 15,126 Total 2,379,448 2,414,961 Deferred Wolf Creek Costs (Note 2), 98,172- 55,421

. Izvestments and Nonutility Property - 9,748 c - 9,836 Current Assets - . Cash 1,998- 2,900 Temporary cash investments

- and special deposits 5,752 162 Receivables ,

Customeraccounts receivable,less .

resenes of $1,259,000 and $1,079,000 146,244. 43,926

' Accrued unbilled rewnues - 22,345' 22,396-Other receivables 13,863 12,505 Fuelimentories, at awrage cost -25,902 36,005-

- htaterials and supplies, at average cost 43,699 32,091 Prepayments - - 5,343 4,017 '

' Total -165,146 154,002 Deferred Charges - - MPSC rate phase-in plan (Note 2) 16,714 -

. Deferred income taxes '5,863- 352 Other '26,8031 19,486 Total - 49,380 ~ 19,838 Total $2,701,894 - $2,654,058 LIABILITIES -

Capitalization . Common stock-authorized 60,000,000 (See statements) shares without par value-30,954,363 und ~

30,938,327 shares outstanding-stated value - . $ 1449,697 $ 449,262:

Retained earnings (Notes 2 and 4) 406,759 384,353 Capital surpius ' 3,796 4,779

. Total 860,252 - .838,394

? mulatise p eferred stock 92,000- 112,000

, Cumulative preferred stock (redeemable) 32,876 65,836 Cumulative preference stock (redeemable) 8,333 33,333 Long-term debt J 1,077,992 1,128,681 Total 2,071,453 - 2,178,244 Current Liabilities Current maturities oflong-term debt 52,122 7,915

~

P.eferred and preference stock (Note 5) < 45,300 -

Accounts parable 45,827- 47,237 Dividends declared 4,448 5,334 Accrued taxes 8,931 9,500 Deferred income taxes 10,923 10,892 Accrued interest 17,458- 18,204

~

Accrued' payroll and vacations 10,241 10,092 Other 4,810 4,169 Tbtal 200,060 113,343 Deferred Credits Deferred income taxes 329,604 261,823 Deferred imestment tax credits 97,945 98,671 Other 2,832 1,977 Total 430,381 362,471 Commitments and Contingencies (Note 2)

Total $2,701,894 $2,654,058

l. 13 l

b ..

s m.c n n , ia>rco-pn>

r Year Ended December 31 '

11986 1985- -1984 INCOAf E TAX EXPENSE ' -

<<Aom..ad -

TIbtal income tax expense was less than the amount' computed by applying the stattitory federal income' tax rate of 46% to ! -

income before taxes. The reasons for these differences are as follows:

Taxes computed at statistory rate on ; .. .

. income before income taxes -  !.$j 79,612J - $ :100,029 i

. ,S -101'867-:,

increase (decrease) iri taxes resulting from

X g

? Allowance for equity funds used ' -

j during construction [' - '

f619f j29,711)] [(36,071)

J'olf Creek carrying costs-equity; , (8,862); , 1(10,935); -

QIPSC rate phaselin plan - c (7,688) -

CJ ' ' : ' 5-.- ',

l Differences between bookand tax?

. fdepreciatioti not normalized L 5,511- 3,288; g 1,446 Removal costs > '(1,286) L ' (1,164) _. , - (908) . .

e Amortization ofinvestment tax dredit : .(3,840)7  ;(3,027) : (2,580) 1 State income taxes : 3,212 y 2,791 ' 3,792 --

P Other; -

- (666)-; ~1,063 - - -2,462 716t$1 income tax' expense 5

'S

. -66,612 1$' : 62,334' 2S4 70,008- -

COh!PONENTS OF1NCOh!E TAX EXPENSE' Crrrently Payable' Federal - - $ -

$  : -- - $; 6,537 ,

Statei -- - - - 3,691

/R>tal' - .- ;10,228! ,

. Deferred l Federal (net)

~

.64,5031 6G,193 - 35,367'.

- 5,949 5,168-

" State (net) L 13,332 -

f.

Ibtal - 170,452- '65,361 . 38,699 :

InvestmentTax Crediti _ Provision -

.-- .23,6611

- Amortization ' (3,840) ? (3,027)1 (2,580)

Total ( ,840):.  : (3,027) - 21,081

~'Ibtalincome tax expense ' '66,612 62,334 - 70,008-Ies:: Income taxes applicable to other income and deductions- 323 (226) 440

' Income tax expense applicable

. to operating income S 66,289_- $ 62,560 $ 69,568 DEFERRED INCONIETAX EXPENSE ~~

Depreciation differences .S 55,472- $ 37,395 $ 7,569 Debt component of AFDC (88) 22,211 26,325 Wolf Cicek carrying costs-debt 9,256 9,043 -

Defermi WolfCreek expenses 3,213 6,005 -

Repairallowance (1,014) (817) 1,362 L'nbilled resenues (25) 2,025 (1,991)

Expenses apitalized 2,469 4,I50 3,719 Tax loss carryforward (1,875) (12,976) -

Other - 3,044 (1,675) 1,718 Tibtal $_ 70,452 $ 65,361 $ 38,699 GENERALTAN EXPENSE L Property and real estate $ 24,873 $ 23,622 $ 19,290

Gross receipts 33,825 31,153 31,243 j Other 6,253 5,116 5,208 l 'Ibtal S 64,951

$ 59.891 , 55,741 The accompanying Notes to Financial Statements are an integral part of these statements.

i 14

m _ -.

Kauas City 1%r & Light Compauy

. Year Ended December 31

' 1986 . 1985~ 1984: _ ,

(thousands)  :)

Funds Provided Net income .

, $ 106,458 $ 155,121 . $ 2151,441.

i From Operations ' less dividends declared ' 84,052 92,903 89,221 ~

~ T<>tal -22,406 62,213 62,220 Items not requiring current use of funds ; _

Depreciation .

84,177? (62,443: = 47,561 '  ;

. Amortization of nuclear fuel ~ 18,497- 7,796-

~

' Deferred income taxes (net)- - .

non-current portion' .' 70,4211 63,190 T :40,8191 Imestment tax credit (net) .  ; (3,840) 1.(3,027) ? 21,081-Deferred WoliCreek expenses and carrying cats (Note 2) '  ;(45,311) . - : (56,866)c .1 MPSC rate phase-in plan (Note 2)- (16,714)L -.

Allowance for funds used during ' .

construction (AFDC) -1,524' -(l10,652)1 -(134,365)'

Total 131,160 25.102; 37,316 Funds Provided From Issuance oflong-term debt . ~ 73,580 ' i110,289 . 207,409 : -

' ~'

Outside Socrees Construction funds held by trustee .16,292 5,053 -

Issuance of preferred stock . .

-c .10,000 Issuance of common stock (16,036,7 1,212,922 and 1,404,825 . . . .. _ .

shares, tespectimly) i435, ;24,371; 23,357 Increasein borrowings under loan agreements .1 43,000  : 35,0001 Retirement oflong-term debt -  :(79,743) . (64,885) f 1-Retirement of p:eferred stock . a (20,000) : .

<- Premium on retirement of stock -

and long-term debt - .

(5,810) '-

Preference stock sinking fund -(12,500)

~

1(8,334); '

' (4,166)

Decrease in short term borrowings  :- -- (27,000) >

Total (44,238)? '120,733i J 249,653

)

Decrease (Increase) .

In Working Capital * (13,934) '~ , 6,780'. -(6,716)1 Oth:r  : (602) 5,112 -- (3,181) .

)

Total Funds Used for Gross Property Additions 72,386 ~ 157,727_. '277,072' taxes included in utility plant (1,843) 103,348 125,607' Gross Property Additions $ 70,543 ' . $ - 261,075 $ 402,679 Decrease (Increase) Cash $ 902- S 290 $ ' (274) -

In Working Capital

• Temporary cash imestments and special deposits (5,590) 7,034 (6,915) -

Receivables (3,625) (12,314) 6,573 Fuelimentories 10,103 9,675 (400)

Materials and supplies (11,608) (5,668) (2,408)

Accounts payable (1,410) 6,283 (6,113) .

Accrued and current deferred income taxes (538) 2,003 (2,248)

Accrued interest (746) 1,078 5,828 Other (1,422) (1,601) (759)

Total $ (13,934) $ 6,780 $ - (6,716)

• Exclusive of the short-term borrowings, long-term debt and preferred and preference stock included in current liabilities.

15 L

r L haun Cary fbwer &lsgLt Compen,y ,

~

>- December 31 ~ .

, .1986- . . 1985

- 'CUh1UIATIVE PREFERRED STOCK (Not. 5) . -

n4,m a,r

$100 Par Value 3.80C4 -100,000 shares . -$. -10,000- ~$ 10,000 4.50% ;-100,000 shares e i < 10,000 ~ L 10,000 -

J4.20% ~-570,000 shares ! ..

1 7,000 ' . .- 7,000 14.35% -120,000 shares - W .12,000 ; '

12,000 ~

. . 7.72% -130,000 shares ' '

.13,000, J 13,000 -

No Par $10.70 -- -0 and 200,000 shares 1 . v i : .--- - 20,000- -

1$ 2.33 -800,000 shares -

- 20,000 L 1 20,000 '

. $ . 2.20 . -800,000 shares: 20,000/ 20,0001 Total' '$ 92,000 J$ - 112,000 -

CUh10 LATIVE PREFERRED STOCK (REDEEh!ABLE)(Note 5) J

$100 ParValue - 4WE -- 28,757 and 30,357 shares ( -

i$ : 2,876- i$2 -3,036 No Par $17.05 9228,000 shares *P 3 .

22,800 .

$13.25 .-300,000 sharesi ' '

530,000., .30,000

$ 12.875 - - - 100,000 shares ** -  :-. 10,000 -

1 Total : , R $ :- 32,876 ' " ; $ - 65,836 CUh!ULATIVE PRFFERENCE STOCK (REDEEh!ABLE)(Noie 5) <

A No Par - S 8.00 -- 83,332 and 124,999 shares i H$: - 8,333 '$ -- 12,500 -

$12.75 -124,999** and 208,333 shares 7 ~ .' -- 20,833?

. Total- y ' c$~ 8,333- - $ '33,333 LONG-TERhl DEBT (excluding current matierities) (Noti 6) -

First Mortgage Bonds 14 % . series due 1989. '

' $ : 50,000;  ;$ L '50,000 5%! Escries due 1990 ? '- -

~ 420,0003  ; 20,000:-

J13W% - serics due 1991. - '25,000-' 25,000.-

13.48% series due 1991* L ~g;  :. 25,000 '. 25,000

~10%% i series due 1993* : S" - 7,500' - -7,500 9.46% series due 1994*2 y" . 60,000 c ;60,000

. 4%7c series due 1995 - , 15,000 ' 15,000 5%%n- series due 1997:5 t 30,000. . 30,000 6%% - series due 1998 ? _

25,000 - 25,000 7K% series due 1999 2ti,000 i i26,000 9%% seriesdue2000

~

35,000

:35,000 7%7c' series due 20011 , - ;27,000 27,000 7%% series due 2002 , - 130,000' ;30,000 8%% series due 2006 ' ,

?40,000 ; . 40,000 8K% seriesdue2006 130,000. 30,000 5%% seriesdue2007* 1 -21,940: 21,940 5%% wiies due 2007* '

20,000 '20,000 8W% seriesdue 2007  : 30,000 30,000 9%% series due 2008 - . :25,000 25,000 6%% series"A"due 2008*; -9,200 - 9.200 6%% series"B"due 2008* . . . 21,800.. 21,800 series due 2009-redeemed in 19861. 50,000 127c .-

16W% seriesdue2011** ,. . -; 50,000 13 % series due 2013 : '60,000 . 60,000 12 % series due 2013* - I1,980 -11,980 hforigage Bonds 8%% seriesdue 1994 60,000 - -

Guiranty of Pollution Control Bonds 5%% seriesdue2003 - 15,000- 15,000 Variable rate series (% at December 31,1986): .

. 40,000 - 40,000 5.13% seriesdue2014 4.85% series "B"due 2014 50,000' 50,000 4.87% s-ties"A"due 2015 - :56,500 - '56,500 5.02% series"B"due2015 -50,000 50,000 loan Agreements 118,000 118,000:

Nuclear Fuel Lease (7.947c at December 31,1986) . 44,820 55,390 Unimortized Premium cnd Discount (net) _

. (1,748) ~- (1,629)

. Total ,$ 1,077,992 $ 1,128,681

• Pledgetiin support of pollution wntrol bonds or other agreements.

"To be redeemed or purc hased during first quarter of 1987.induded in current liabilitics.

16

m . =m  ;

3

^ %ai Cl.y kbr dLght Chupady ~

~

Year Ended December 31

,' 1986 1985 1984 (thousando l

( Beginning Balance : <

$ 384,353 $ 322,135 $ 259,915

! Net Income _

106,458 155,121 151,44I 490,811 477.256 411,356 Dividends Declared - i Prefernxlima preference stock'

~

. (at required annual rates) - 19,383 '21,722 21,991

~

(Common siock'~ J i$2.33 per share ' _ 67.230

? $2.36 per share (

~

71,181

} $2.09 per share - L 64,669

~

- - -84,052 92,903 89,221 Ending Balance (Notes 2 and 4) . . $ 406,759 $ 384,353 $ 322,135 IThe accompanying Notes to Financial Statements are an integral part ofihese statements.

'l.' S hlAfARY OF SIGNIFICANT ~  ? annual composite rates were 3.01% in 1986,3.51% in 1985 ACCOUNTING POLICIES . and 3.61% in 1984.

- System of Accounts:The accounting reconis'of the' . jThe Companycharges to maintenance expense the

' Company are maintained in accordance with the Unifonn ,. repairs of property and replacement and renewals of )

i System of Accounts presciibed by the Federal Energy ' items determined to be less than units of pmpeny, except Regulatory Commission (FERC) and genemlly accepted for such costs which are charged to clearing accounts and redistnbuted to mnous operaung, constmcuan and accounting principles.

other accounts.The costs of renewals and betterments of Udlity Plant: Utility plant is stated at historical costs of unit 8 f P rope ty are charged to the utihty plaru accounts.

construction. These costs include taxes, payroll related '

- Property units retired or othenvise disposed of m the costs including >ensions and other fringe bene 6ts, and . n rmalc utse f business are charged to the resenes for an allowance fo ftmds used during constmction. . depreciation, along with removal costs, net of sah age.

' Allowance for Funds Used During Construction ' The amounts of maintenance and depreciation ex-(AFDC): AFDC includes the cost of borrowed funds pense ot.h er than those set forth in the Statements of

. . used for constmction purposes and a reasonable rate Income are not signiGcant. Rents and lease payments for upon other (equity) funds. The allowance for borrmved railmad cars, computer equipment, buiklings and similar

' funds represents an allocation ofinterest costs to con- items are also not signiGcant.

stmction, while the allowance for equity funds is a_ non- Nuclear Plant Decommissioning Costs:The AlPSC cash item ofincome. AFDC is charged to constmction and the KCC estimated in 1985 dollars the cost of decom-work m , pmgress during the penod ofconstruction. missioning the Mblf Creek Generathrg Station (Mblf When a constmction project is placed in senice, the Creek) to be $103.3 million and $140 million, respectivelv.

related AFDC becomes a part of the ong,mal cost of the On September 30,1985, and Alay 5,1986, the effective '

completed plant which is used to establish rates for utihty dates of the new Kansas and hiissouri tariffs, the Com-1 harges under established regulatory rate practices. The pany began rate recmery of the respectivejurisdictional rates used to compute AFDC, before associated deferred dions ofits 47% share of these costs which are being

mcome taxes, are compounded semi-annually and aver- charged to operating expense. Pursuant to AlPSC and aged 11.6% for 1986 and 12.2% for 1985 and 1984. , dKCC

- hegatne AFDC is bemg recorded on credits carne in

. requirements, such amounts are being recovereo over the life of the plant and placed in an external tmst

. nuclear fuel m process n sulting from the settlement of fund to be used only for the physical decommissioning of '

nuclear fuel hu,gation m 1980. - WolfCreek.

Depreciation and Maintenance: Pnwisions for depn' Nuclear Fuel: The cost of nuclear fuel is amortized to I

ciaue n are computed on a straight line basis pursuant to fuel expense based on the quantity of heat produced for

. rates ordered to be used for junsd,cuonal i property by the the generation of electric energy. Onder the Nudear Ahssoun Public Sernce Commission (AIPSC) and the Waste iblicy Act of 1982, the Department of Energy

' Kansas Corporation nmmission (KCL). Approximate I

17 a_ _i

g. ' '

;3; . L g

((DOE) is responsible for the permanent disposal of spent Components of 1986 pro ision for pensions'(in housands'): ~

-- $ 4,051a

~

nuclear fuel. The Company currently pays a quarterly -.

Senice Cost * ~

t fee of one mill per kilowatt-hour of nuclear generation to - Interestcoston projected ,

f the DOE for future permanent disposal se:Tices.The benefit obligation _ b t11,9151 ^ -

f disposal costs'are charged to fuel expense and recovered

~

Actual return on plan assets t . (20,270);' .

through electric rates. Other ~ - 6,420-i Deferred ' C hargesiCenain costs, such as those incuned _ wTotalItnsion Expense , , ? $ a 2,116

_

for major storms, premium on irdeemed debt, debt! - - J -

L expense, and other costs, are arconfed as deferred - . TIie pension. expense was $5.3 million in 1985 and $6.9 L mdh,on m 1984 '

w 1 charges when it is probable, based on historical regulatory

precedent, that future rates established 'by

the regulators _ Revenue RecognitibniIhe Company' utilizes dycle lhl[ , .

-will recowr amortization of such costs. . c ling and accrues the amount of re enue for sales unbilled ?

? Retirement Plans: The' Company has pension plans for. c at the end ofeach reporting period.

all its regular employees, including officers, providing for : IncomeTaxes: The Company generally normalizes the ,

(benefits upon retirement, normally at age 65. In accord-? efrects of the use of accelemted tax depreciation methods.

ance with the Employee Retirement income Security Act -  : Defened income taxes haw been prmided for tha differ L W .. of 1974 (ERISA), the Company is obligated to' meet mini- ences between book and tax deprecia' tion except for;the -

4 . mum funding requirements. Benefits under these plans ; effect of accelerated depieciation on hiissouri property; y 4 reficct the employee's compensation, yean of senice - acquired prior to 1972. Accelerated depreciation methods 9 -

ff<

and age at retirement. Prior to 1986, pension expense equalled the amounts accmed for funding.

~ include the use of the Asset Depreciation Range Eptera ' ' ,

. and Accelerated Cost Recmery System which permit .-

' Beginning in 1986, pmvisions for pensions are deter - shorter li es. Taxes deferred on property additions fora mined under the mies prescribed by Financial Account- cenain prior years are now being restorrd to income as :

• _ ing Standards Board Statement No. 87 which along . the timing difTemnces rewrse. ,

~.__.

with cenain decreases in minimum funding requitrments The tax efTect of the interest component of AFDC is ? -. <

has resuhed in a decrease in pension expense. Ibnsion normalized and the related accumulated defened incofne F -

expense for 1986 was determined using the following taxes are credited to construction work in progress for all 5 facton: projects except for deferred taxes related to the Missouri? , ',

December 31

, jurisdictional portion of Wolf Creek'which are credited to <

1986 1985- - deferred income taxes on the balance sheet. _.  ;

(thousands) ' The Company normalizes foralljurisdictions the tax _'

Accrued Benefit Obligation: effects of pension costs, payroll taxes and property taxes .'

Vested $132,030 $109,693. which are capitalized on the books but haw been de--

Non Vested 4,713 3,886 ducted currently for income tax purposes. The efTects e 16tal $136,743 $I13,579 of the current deduction of removal costs are flowed ' '

. .. through to netincome.

Determmanon of Plan Assets The tax effect of the ctimulatim net amoun't ofincome less Obligations: tax timing differences for which defened income taxes? -

Fair value of plan assets (a) $188,181 $170,252 139,711 haw not been pro ided is approximately $40 million at '

Projected benefit obhganon (b) 169,420 December 31,1986. These amounts are being reco ered .

DifTerence ' $ 18,761 - $ 30,541 through allowed revenues as the timing difTerences' Reconciliation of DifTerence: reserse.

Contributions to tmsts For the years 1986 and 1985, the Company incurred :

. Ptrpaid $ 1,873 $ - net tax operating losses of approximately $4.3 million Accmedliability (1,267) (3,197) and $26.6 million wnh estimated tax benefits of $1.9 mil-Unamortized transition amount 31,676 33,738 lion and $13.0 million which were used to reduce the pro-Unrecognized net loss (6,614) - vision for deferred income taxes. Sud . amonnts of defer-Unrecognized prior senice cost (ti,907) - red income taxes will be mstomd as the net tax operating. ~

Differente S 18,761 $ 30,541 I sses am utilized.

Investment tax credits haw beer, deferred when (a) Plan assets are imested m msurance contracts. corpo- ut lized and are being amonized to income over the ser -

rate bonds, equity securities, U.S. Gowrnment securines vice liws of the related properties. At December 31; 1986, e and short-term investments. the Company had unused and umecorded imestment

~'

(b) Based on a discount rate and rate ofincrease in future tax cmdits of approximately $13 million. Under the 7ax salary lewis of 8% and 5% for 1986 and 8.75% and 5% Reform Act of 1986, a portion of the investment tax credit.

~ for 1985. carryforwards will have to be reduced by 17.5% if utilized -

' A 7% long-term rate of mturn on plan assets was used. in 1987 and by 35W if utilized after 1987. These carryfor-wants will be available to reduce federal income taxes payable through 2001.

18

s w, s - _',

%g m';'

<',ma ,

k. w f i.ff ~ ' ~ ~ Wg ( s

.- , ~

c yy-ypg + ,

=q ,

72* ,

r Subsiiliaryi The Company has a wholly-owned sub- tization is reflected in the yearly rate mcreases (column 1).

@. s sidiary, WYMO Fuels Inc. (WYMO), organized for the The MPSC funher determined that:

e acquisition and deselopment of a>al properties. The .. .

1 (i) TheCompany. M.issounjunsd. s .ictuinalirnestment in

% iCom h its imestment in WYMO Wolf Creek should be reduced by nearly $92 milhon

' ur "Yequ.

the asity-accounted

-method an ford has not pre red consoh.- .

duet unexP l. amed cost owrruns and proj.ect mis-

? dated financial statements because the efbt of consolida. ni nagement and approximately $11 million resulting .

., ftion upon the accompanying financial statements would fmni disaHmed costs for common facilmes. Accord--

E r not be significant.The 1985 and 1984 net income of the .

ingiy the Company was demed a return and deprecia--

N 1 ' respecthely Companyto'w;as reflectreduced thelosses on byWYMO's

$2.7 million and $4 books result- million, tx>n on these amounts. y ing from the write-downs of WYMOs fixed assets to re. (ii) The Company's shareholders and its customers w%

• L flect the appmximate value estimated by management.. .. shoukt share the financial burden associated with L "9 E T'ie fixed assets of WYMO weie totally written off as of . 395 mw of excess capacity which the Commission 7 m  : December 31,1985.1 assumed would exist on the Company's system in - W

& : 2. WOLF CREElp ,

1 As a mult, die Company was aHowed only pnet ,

half of the common eqmty return on 75% (pernutung t f%

' 6^ , .." Rate .. . -

m Matters: Wolf Ciecklan 1128 mw unit, commenced , full common equity return on 25%) of the allowed - N, 4 4"'

-commercial operauon on September 3,1985. The $1.45 Missourijurisdictional Wolf Creek rate base.E

- ~ - - ~

.. #3M' J billion costo.f the Compa 's 47% share of Wolf Creek TheCompanysou8h. tjudicialrev.' - iew of the" MPSC Orde"r,s.o~ M<

. (530 m<w) .is- mclud

=. - .

- . n. t-m'-se. rvice.The Company.

. g%

qw' n

in the Cn.etut Court of Cole Countb M,ssou,.That re- ' ^ e i

t uest.s for. m.ed m.. . eases m,is = retad eleitnc rates m M. --

+ --

cr . -

. filed. m was dismissed on Februa . 4,1987,pur-a w s

-weew

~ -

pe.w pmceed~g e soun a h,ans.as to recmer its ownership and operating

' costs in Wolf Creek.' Approxim'a tely.70% of the Com.

5"antt a SUPulau.on and Agreement wh -: - f gg panyi retail electric rewnues are derised fmm its opera-;

t(i) matelpS74 PmvidesmiHion that,ofeffectiseJanuary 1,1987,(a) approRn K ' itions in Misso6n and 30% fmm Kansasb r - M. Wolf Creek plant additions;' fP

. 6The M PSC issued an order on A ril 23[1986, fiiEling . g made between March and September 1985 Will be ~

M

$mNttiatithe Companywould be'entiti to phase-in a menue f t

? increase owr a sewn-year period (ses table below) with : 7

{dep.uded in the Company's incl reciated mer the life of the plant, and (b) approxi o M

6 dthe first yearitatiffs effectne May 5,1986land the sub. ,

mately $89 million of Wolf Creek deferrals accumu-M: @@

Msequent years' tariffs effective nutomatically on May 5 ofi lated fmm September 1985 to

- M cadiyear of the -in uhless sus L duded in the Companyt Misso, May 1966 un rate base andRf cause shown orunb' 'ndedby theComc

" Wmission for ~

? files tariffs requestingincreased rates At the end of their ,

the Companyg ,

• i.ylectamortized to final aud,t and determmauon i

merm a10 ,

future years, rateg g whidi

@Cmenfyea@eriod, the totalinucase in'menues wouki be?h S Pmceeding; g gy , w 34 g jggp g

'g appmximately $120.1 million, or 33.4%,"mer the test year?

Ale el!A $59.6 million'(12.4%) decrease wafondered in thef , f ~ R conditions affecting the Company's j(ii) acknowledges that economic esents and changedM i9 feighth~ year. , , < ~ ftions,since the .MPSC Order permits 'those adjustWMb 5ThEphS$idpEnp%F rovideidA followirigh M l N- - , _

p4 ments to be made without a concurrent chknge in MMf:

i ~ J 1)VWO(2)Em H(3)V ~ f(4)4  ; the Company's Missouri electric service rates; and RJp y(.

~

Y W J.iDeferred 4 s agrees that (a)'thd C$npany williibt seek fuNurY A$h!

. pe = ? , g{DefenedCos@ of ^-- ^

diii[L Missouri rate base inclusion Mg 6f the~

@. dearlyDatej yogfNetK . nO LCanyingr Amonn, au.on 1 savings s of Wolf Creek imestmendpecifically disallowed byW 1 Costs s 4 of the Deferral < L the MPSC Oi'det a'nd (b) other parties to the StipulMNb di.arn increases p(Amount in Millions) : - O 3Q '

p .I 4,25.217%7 3 $23.7o. n $ .. l.4 ' tion ance ofwill any not

~ costs seek of Wolf future Missouri Creek presently ratein base included k ~disallow W ( i (I, ,h the Company's rate base' pursuant to the M PSCf# h' *jhh Order.> ^

f e 4' l14.6 3.5%N ~(1.4); ,5.7- $ 1.2 l ,, 4g y '5 715.193.5 % ; - (.9) J 5.0 10.7 c The KCC issued an interim order on September 27, f -

e u:

96: of 15.7,3.5% 3.2 20.2 ,1985, and modified it on Nosember 15,1985, authorizing i~

, 17) '16.2 3.5 % ,

30.0 . an increase in annual Kansas retail electric resenues of W,'

&, '$120.t k , @ SA $24.1 M2d $28.2 millioa (16.2%).

• y* ^'

The MPSC5 phase-in plan results in deferral (tf a cash The KCC determined that

^

n termery of a portion of the cost ofequity with recovery of (i) TheCompanys Kansasjurisdictionalimestmentin m such deferrals plus the carrying costs on the defen al in Wolf Creek should be reduced by $40.3 million be-1 later years; Each year the Company will record as other cause of alleged impmdent construction costs (excess income the defermi cost of eqmty (column 2) and he man-hours and construction delays). Accordingly the A

. carrying costs (column 3) with amoitization to expense of Company was denied a return and depreciation on such amounts (column 4) starting in year four. This amor- that amount.

i

<=

19 l

- _mm . _ _ _

74 7 ~ ._ g ; 7m .g 7

m.

jg ,. 7 4 _ .-- - jd .; *'. . K. -

p,

~

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y

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3;  ;-

~

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-1 n ~ "

-if,s ,

,w. . , ,

(ii) For rate of return purposesfthe Compan' yh Kansas f frently accumuladng at the rate ofmer $4 million per jear[ - 1

^4 jurisdictional imestment m Wolf Creek was further a ' < In accordance with these orders the Company has a t ~ ' y

7 reduced by $288.7 million &>r economic revaluatio C Edefened asset at December 31,1986, of $98.2 million,) ,

f of Wolf Creek and alleged excess capacity of 314 mw; , '

including equi _ty capital costs of $43.0 million.ThisD , a however, the KCC allowed depieciauon on this / defermi asset reflects an $11.1 million write-offin'the amount. The revaluation of the Company's Kansas fourth quarter of 1986 ($8.7 million teduction of net 40

jurisdictional imestment in Wolf Creek was based on p a cost ($1,290 per kw) for a hypothetical coal-fired ;~

f concluded that the recmerylof a portson of thH generating station.

~

s iwasremote g - '* '

, SFurthN me gI==n't'of FASB Statement NoN1: FASIN x e~ n OM A With respect to the economic revaluation' adjustment ;

the KCC order stated thet ihe adjustment was neitherEy - lis cunentlyconsideringamemlin generallyaccepted Q m .

I "'

meant to be permanent nor a result ofimprudenceJThe i [accountingprinciples as theya to phase-in planscAs ? .,

B Company filed an appeal on Nmember 14 1986 with the3  : part of this project, FASBis cc ringif the capitaliea9? ._

4 United States Supreme Court seeking a review of this : ' 1 tion of the cost ofequity' "td should be allowed beyondT ^ j

, adjustment. , ,- -: ' 1Itheconstruction penodi etion of new accounti M - M :s Write-Off Required in 1988: In' DecembEI986, the jl'inancial Accounting Standards i FASB couldimpact g i ,

'g?~.

FASB Statement No. 71 by adopting new accounting h 7 d lg } ]l t standards dealing with regulatory disallowances -

of planti d Anderson NuclearInsurance:ThePrice j( Costs an yPSC. Ra I costs. This new accounting standard, FASB Statementi ' (limits the public liability'clains that could Act arisecunendy??(a.

from a1,  ?

No. 90, mjuires n cognition of an estimated loss on ths , ~

nuclear incident to $695 millim. The Company and ( n&

financial statements when it becomes probable that'part [ M4 other ownen have purchased the maximum available! <, W F r . ofihe cost of a recently completed plant w ' ill be disalkswed b Mprivate Msurance of $160 'million and the excess $5351 ~ M for rate-making purposes (either durctly or indirectly;.' fT 1 million of cmerage is i6surst by Secondary Financial ~ ' y si? '

E such as through explicit disallowance of return on a G . ' 5 Pmtection (SFP). The SFP cmerage is funded by a man? M b portion of maythe be plant). The new restating standani becomes effective  ? O datory program.ofdeferm! premiums m 1988 and applied by either priors > w 2 all ownen oflicensed teacton.The Act currentlylimits iE

! perial financial statements for the write-off or by rep (the' amount of assessment per reactor to $knilhon

~

($2.35 WW

million,Com~ ' Tshair) for one incideni and $10 mil? 4 mg principle. it as a cumulati e effect .~ ' of a change

<% ~

4 in 'an ahcountingM,Mlion ($4.7 mi " ~, e4

' hshase)foranycalendaryesid%Q In acconlance with the new standaN, thS Wolf dr'ehk'! Q%The Act is expected to ' extended beyond its currentr y regulatory disallowances,' as discussed in Rate'Matten i f j expiration date of August 1,21987, with significant ine m Q:

abme, would result in an estimated write-offinl1986,~ if 6 5creasestothelimitsandassessmentamounts ; M _ M:

[ recorded, of $142 million before taxes and $87 million net E - ' $The owners of Wolf Creel have prucured ipproxi9 W*

• of taxes based on a federalincome~ tax rate of 46%i($100 t y mately $1.2 billion (the maximum hvailable as ofJamsar)( 'f g million based on a 1988 31% tax rate).5 , ,Q - 115,1987) of property damage insurance cmerage fmm a . 1

- No write-offis required because of die excess capacity [ ' Wombination of the"nuclearinsurance pools"and Nuf ' @,

adjustments included in the commission orders.7 7 f '  ; jclear Electric insurance, Ltd."(NEIL).The owners of 9 ,

T The estimated write-off abme does siot ieflect any I X %bif Creek have also procured extra expense insurance d 4 j provision for loss for the economic revaluation of WolfV 0 fmm NEILt&mer some of the increased cost of replace? y

[ Creek by Ihe KCC. The Company belieses a reasonable J . i; 1 possibility exists that no write-off will be required in' 1988

• ment power outage.The shouldexpense NEICextra Wolf Creek policy is sustain structure a pmlonged.d <

as a result of this adjustment by the KCC because the J , ~with a six month waiting period deductible and one year--

ofcmerage at the weekly mdemnity limit, followed.by *  ;

Company is pursuing regulatory andjudicial review of - .

the economic revaluation of Wolf Creek. If the Company  ; one year ofcmerage at 50% of the weekly indemnity A' "

is not successful in ihis regard, the estimated additional - limit.The Companyh weekly indemnity limit is approxi-i loss would be $128 million before taxes and $83 million  : mately $690,000. Under both NElL policies, the Com e net of taxes based on a federal income tax rate of 46% pany is subject to setroacti e assessments ifindustry .

t ($95 million based on a 34% tax rate). losses, with respect to'each pohcy year, exceed the ac.

Deferral of Costs Related to Wolf Creek: Onlers from cumulated funds mailable to the insurer under that i the KCC and M PSC pmvided for continuance of con. icy.The estimated maximum ietroactne assessments i simction accounting for ratemaking purposes subsoluent for the Company under the N EIL policies are j to the commercial in-service date of Wolf Creek until the mately $7 nullion per year.

I effectise dates of the foregoing rate onters. In additicm, Nuclear Fuel Commitments: At December 31,1986,

. the September 27,1985 KCC order directed the Company Wolf Creek's nuclear fuel commitments (Companyh 4- to defer a [mrtion of ahe carrying costs on alleged e < cess share) were appmximately $73 million for uranium 4

capacity until ihe plant is fully needed. The defern d concentrates through 1997, $242 million for enrichment i carning costs on the KCC alleged excess capacity arecur-1 4

3 an I,.-,-,. , .. ,- , . . . - r - - - , , .

4 through 2011, and $33 million for fabrication through January 1987 ofits intent to purchase in hianh all of the 2005. Company's outstanding shares of $12.75 Cumulative 3.SIIORF-terat BORROWINGS Preference Stock and $12.875 Cumulative Preferreu .

The Company borrows shon-term funds from banks eQstated values. These issues are included in current liabihues as of December 31,1986.

and ihrough the sale of commercial paper as needed. At December 31,1986, the Company had authorized IJnder nummal fee arrangements the Company has bank 518,757 shares of Cumulatise Preferred Stock at a par imes-of-credit totallmg $150 milhon. No short-term value of $100 per share,3,800,000 shares of Cumulative borrmvings were outstanding at December 31,1986, or No l'ar Preferred Stock and 4,000,000 shares of Cumula-December 31,198a,.

tise Preference Stock without par value.

4. DIVIDEND RESTRICTIONS If any dividends on its preferred or preference sta k Retained earnings at December 31,1986, included $12 are not declared and paid when scheduled, the Company million which was not available for cash dividends on could not decbie or pay dividends on its common stock common stmk under the provisions of the Indentum of or acquire any shares thereof for consideration. If the f Afortgage securing Mrst hfortgage Bonds. amount of any such unpaid dividends equals four or 4-

5. PREFERRED AND REDEEh!ABLE PREFERRED m re full quarterly dividends, the holders of p:efened or Preference stock, as the case may be, voting by the dasses AND PREFERENCE STOCK

. prescnbed for tins purpose, could elect representatives

,.fhe outstanding Cumulatne Preferred Stock of $92 on the Company's Boani of Directors.

million may be redeemed at the option ot the Company

6. LONG-TERhl DEITT at prices wilich in the aggregate total $99 million.

The Company's Cumulatist Prefened and Preference First hfortgage Bonds:The amount of Mrst h!ortgage Stock (Redeemable) may be redeemed, in whole or in Bonds authorized by the Indenture of Afortgage and part, ratably from ei.ch of the holders of the outstanding Deed ofTntst dated as of December 1,1946, as supple.

shares, at times and prices specified in the purchase - mented,is unlimited. Substantially all of the Company's agreement for the individual issue. Redemption and utility plant is pledged under the terms of the Indenture.

sinking fund dates and amounts are as follows for those The Company cannot issue additional First Afortgage issues foi which a notice of redemption or purchase has Bonds as long as any of the Afortgage Bonds (discussed not been sent: below) are outstanding.

@{"'j,n Annual sinking ruw- Afortgage Bonds: On December 2,1986, the Company issued $60 million of Afortgage Bonds.This was the first naic idiii~ current initial se m swua pate erwe paic prae share, series oflxmds issued under the General Afortgage Inden-cumniative Praerra ture and Deed of Tmst dated as of December 1,1986.

n mm currency sto2.2s currendy siot.2xa) uoo The amount of Afortgage Bonds authorized by the Gen-sis m tw2 currenoys us.25 mxa mai como eral hfortgage Indenture, as supp' mented, is tmlimited.

cumuutisc rrseren<c The amount of additional bonds nich may be issued is s 8 no ms currendy too currendy ioo u.ca - subject to cenain restrictise provisions of tlie Geneml (a) h!ay be satisfied by open market purchases in lieu of Afongage Indenture.The General Afortgage Indenture sinking fund redemption. constitutes a mortgage lien upon substantially all of the (b) The $13.25 series may not be redeemed prior to Company's utility plant and isjunior to the lien of the l August 31,1987, through refunding at an interest or- First hfortgage.

dividend cost to the Company lower than 13.25Vc. Ioan Agreements: The Company has a loan agreemi t, (c) Company has an option to purchase each year up to expiring June 30,1988, with a group of international 60,000 additional shares beginning in 1988 up to a banks whidi provides for unsecured funds up to $200 maximum of 150,000 of such additional shares. million at interest mtes adjusted quarterly based on the three-month London Inter-Bank Offered Rate. At De-Scheduled redemption and sinking fund trquirements cember 31,1986, $100 million at interest rates ranging fbr outstanding redeemable prefened and preference fmm 6.0?c to 6.5% was outstandmg.

stock, exduding those issues for which a notice of The Company has a financing armngement with a l irdemption or purchase has been sent, for the ncxt five bank, exp, .mngJanuary 16,1989, which enables the Com-years are as follows: $ L3 million for 1987. $10.3 million for 1988, and $6.2 million each year for 1969 through pany to borrow up to $50 milhon by collateralmng as gggi, coal and fuel oil mventones at rates based upon the in January 1987, the Company issued notice of its cunent banken* acceptance dimun ute phys an accep-tanw charge. At December 31,1986, $18 milhon at 6.54 intent to redeem in alarch the o'utstanding shares of was utstand,mg.

$17.05 Cumulatise Preferred Stock. The cost of redeem-ing the preferred stmk willindude a pmmium of $6.2 Nuclear Fuel Lease: The Company has a lease expiring w.illion, of whic h $3.9 million will be charged against in April 1991 which provides for financing of costs up to retained earnings and $2.3 million will be (harged against $80 million of the Company's nudear fuelJI he lessor will capital surplus. The Company also issued notices in obtain, through the issuance of commer cial paper ba( ked 21

8- .N' (

~ .

y '.' ; pC . - ,

, u '

w

a ' ,.

_1;/ . . . / . g ,y .. * +, .t_.

V~  : by letters of credit from commercial badks, or fron. Each participant must provide its own financing. The r; Lrevolving credit loans, the necessary funds t6 purchase Company's share of direct expenses is included in the l

'~

the fuel and malie interest payments when due. %e corresponding operating expenses on the Statements of E Company capitalizes the cost, inc'uding related mterest Income.

O '

costs, of the leased nuclear fuel in process for both book :

8. QUAKTERlY OPERATING RESUElli f and rate making purposes.The Company is obligated to (UNAUDITED)

, reimburse the lessor for the nuclear fuel obligation as the

M ~ , fuelisconsumedin thereactor s i

._ Qua rer QUer QuaYerQuarter

" Scheduled Maturitiesi The following pbilution control 1986 (thousands) 4w  : bond series ha e sinking fund requirements beginning in~

- vatious yearsi 5%% in 1997,5%% in 1998,6%% "A"in .

o7 rating rewnues $142,459 $167,620 $203,753 $151,038 operatingincome . $ 25,791 $ 38,868 5 57,607 $ 30,765 Net income - S 30,137 $ 30,728 $ 41,195 5 4,398(a) 1999,6%% "B"in 1999 and 5%% in 1989.The aggregate ' "

g , B amount of maturities and sinking fund requircinents ~ s re $- '.80 '$ .82 $ 1.17 $ .00 f, ' ' during the next fiw years oflong-term debt outstanding 1985

$ at December 31,1986, (exclusiw of the loan agreements, c .DiiFrating revenues . > $137,770 $139,770 $172,934 $146,147

' OPeratingincome $ 23.571 5 24,248 $ 35,561 $ 22,963 7

tJ

[ which the Company expects will be extended, and thC ~

- : nuclear fuellease)is $50.2 million in 1989, $20.2 million !  : Netincome $ 38,455 $ 39,703 $ 52,698 $ 24,264 Ea percannmn y~' '- iiii 1990' and $50.2 millionin 1991( . , , $ .1.11 $ 1.14 $ 1.56 $ .61

OnJanuary 27,1987, the Company redeemed $50 4 ' . x -

la) see Now raefenal of cma nelawd to m creeWrelating

' ~

3g -- "million of Fint Mort $ age Bo.nds,16%.%. series due 2011 ' O .

=. to the fourth quarter reducten of net income of $8.7 millionc -

which was reflected m current matunues oflong-term i 3 L debt as of December 31,19863 .

i The business of the. Company ,-is subject to seasonal fluc 1 y a. u ,s tuations ;with peak <perxxis occurnng during summer?

1 27.LJOINTlY OWNED ELECTRICE ,

' months.

<W, ',

s UTILITY PLANTS  ; -  %

~ ..

.-m.

N;.

E

', The Company has,'underjoint ownership. agreements ; .

~~

g-

^"

Jwith other utiliues, undivided interests at December 31,"

/( , ~ 11986,in utility plants' sa follows(in millions'ofdollars)( #

- ~

ggg 13Cygnej -1latanL

. 1 Units ' MUnit -

L Un. 1 s

-  : Companya sharei N 1.7 47 % ?

M50 0 f 70% s

-m .

- , e - -~ 1

. UtilithplAdtin seivice ! }$'t,445iM i$241[ ! $239) '

W J.

A

i. N'

? Nuclear fuelin service p 1 $i : 44 i 3< .A

_3$;'10: ?%' 4 . >92 * ' ' '

%v~ '? Spent nuclear fuel; . .O '

. o'

'% ' Estimated accumulated ( MJ 1 N -

1

% depreciation ' , A.

. , , 1 , _.,

m . ., ,.

-b g: ,

, 7

]$ iS5 1;$ 98 1 . L$ 56? ~ ' '

Jy; g f (Produaion plant unly) A .

J Accumulated amortuation ' ? . , % . ~ :b T >

~

1-- Y ;H

• , ' .. f(Nuclear fuel) E . J c . n $ i 26L t . ,

J ' Companyhaccreditedt' hm ' ; ,; "g~~

-i '

p 3 rapacity -MW ? ~ .. JS30; j 658 (

• J469}

,; -nn.

• ,W' <

. *M <W

n. (9 ,

W

,1 _ 7 N r Z u- v4

,t

- ,- u h9} $

T

. . . ,~ - ,

__ i To the Stockholders and the Boaniof Directors of Kansas City Mer & Light Company .

, . . . @ haw examined the balance sheets and statements ofcumulati e prefermi and preference stock and long-term s - l debt of Kansas City Ibwer & Light Company (a Missouri corporation) as of December 31,1986 and 1985, and the related y

R , : statements $ years in the ofincome, period ended December taxes, retained 31,1986. Our earmngs examin'a tions and were sources of fundswith made in accordance forgenerally gross pmperty additions for each accepted audit.

%m mg standards and, accordingl iincluded such tests of the accounting records and such other auditing procedures as we

, ; considered necessary in the clicumstances.

In our opinion, the financial statements referred to abme present fairly the financial position of Kansas City Ibwer

< ( & Light Company as of December 31; 1986 and 1985, and the results ofits opemtions and the sources ofits ftmds for gross

( pmperty addiuons for each of the three years in the period ended December 31,1986,in conformity with generally r

accepted accounting principles applied on a consistent basis.

,'  ; Kansas City, Missouri, ARTliUR ANDERSEN & CO.

7 February 4,1987. '

, ?22

mn , .

r- -

=- - - -

9S

=""E i A.3 ', -- L p ;

> > m, q ',, Q .+- ' <'e n , d f I. ,_

y i "_ C '

~

wp ,

.j%

n,.

L x W '

-  ; a , n.. +

esg ~p +ms[c.,v v.earuu s uceng ,y m _

1

, a .

' 5 0-

,s

,' f ) O ,

1 v -

n,. ,t t

• 4 ,

~n W:

e a ' , _ ,

MM&

, p. '

--w.. . ': ...$ _._l' M- .54 . . e

• O9 '

KWH SALES AND OPERATING REVENUES . is significantly less than theaseragecostofcoal.3 J %M ~

ISalesaMMe'dag - W A erage fuel cost per million BTU for electric fossil? $ ,16 m plants decreased to $1.186 in 1986 from $1.431 in.1985 C T 3. j f . .

~N W 2 increase tDecrease) and $1.479 in 1984. The 1986 decrease is due to' reduced 5A in W W("

7-  : From Prior War i costs of fossil fuels, mainly due to a reduction in failroad v kM

~ i 1986 1985- freight charges effecthe as of April 1,' 1986, resulting s M hl

- KWH/ ;; Revenues 1 ' 'KWH' Rewnues from a new contract. The 1985 decrease from 1984 is due? " Rd

.' ' ~(mjy ?? --(Millions) to decreased prices of oil, gas and coal.[ f 1,, *

/(Millions)' ,

KWh sales ; ~

^ f Residential? N j.6.9%1 . . ., W $ $$ fr J 1.2% -  : $' 4 -

The components ofchange in -fuel '

costsi

. X% A,M , #J+4 gi

'" Mi jIncrea$c'(Mh M 3 '37.

Commercial ( i7.4 i ^ 35 7 . 5,0 . ' 14 C

y c Industrial 4 f -.8 ; s c J5i y(l.1) (1)

X Othe{ ((20 3)f 4 = (I) (30.0) l  :(5)  : 1986 From A + Prior 7985 r WarW ' 'Abad

. 6

,i Total i . i 4.8% '

t 72 i > ' 1.0% 1 12 ~

' , p"Hions)j y

- - - s ,

gp

- - 'iSteam heat and 1 - 1 ~

Fossil-fueled generatmg umts', , ,a w ,y . ygy

- Dother- srewnues YM ' ' ~ d (4):_ - -

e 1-Generation for customers and , _e -

-* mz eO y'~

xTotal) Ql aw E$ 68

~

-$ 13! interthangesales -

f$(4)j" ' $$(13) f g^ D D -p%

.,. Awrage fuelcost s(26)1 r "a 7('5).L

.1Tlie 20mponents ofchange in resenues applicable to '

rotal

, , (3o)9 '1(18)MgMik rC 9 .a~ J hf%

' ~ '

< kwh sales:f~ , 'H - a#

' , ' ' Nuclear plant generation ( e x 12 i s 4

A *

'( _3 y ' g 4 y [l$ crease tDeErease) , Total 3 j$_(18){pz

, T$j;; +, gd[lq

- Fro n PriorWar 7 ,

e .t 21 ;lj 1 , w j g *l, . [ l J 1986 r -1985 Wolf Creek test tun energy of $6.4 millNdi fromJun

-Revenues C y

J -

- ~O-1(Minions) ~ '

13,1985, to September 2,' 198'4was recorded as inter-s m - ?

, "[N O

E  ;$ 10 -

change puithases. T* ^ 4 .-

~ .$ 33 8

(,fw" i@t$

IncreasesI Kwh sales N hase rates e s. V ' ? 44 s 6 INTERCHANGEPOWER(NET)y g

. Fuelcost recmery thro) ugh fuel

-g f ,

, InterchanEesales.exceededinterthanE'purchasesbys -L -hMM adjustnwnt clauses . (5). -(4)-

increasing amounts m 1985 and 1986.The meneases are s

~

Ibtal. e -

, S 72 c$ 12 due primarily to imprmed availability of the Company 16 fossil-fueled generating units an Residential anEcommercial kwl't sales increased in '

level of interchange sales in the future will depend upon 1986 and 1985 compared with prior years reflecting ,

primarilf incmased usage due to an increase m custom. the Companyi system requirements and other factorsf 7 1 '(1

. ers, a slightly warmer summer in 1986'and a colder winter

. suchasfuelcosts,theavailabilit' y ofgeneratingunitsandJ W ; o "in 1985. Industrial sales Were significantly impacted by : the requirements of other electric systems. 24 .

jy decreased sales to a major steel manufacturer. Excluding WOLF CREEK ,

? ,

MM u this manufacturer, industrial sales increased 1.4% and Wolf Creek, a nuclear plant, commenced commercial MO$

q= .; 4.5% in 1986 and 1985, respecthely. Other sales decreased operation on September 3,1985. The plant operated at a0 f ~

m 1985 due to the loss of a wholesale customer mJune capacity factor of 91 % during the four months of comi ( i 198-L mercialoperation in 1985 and 70% in 1986 when the u'nitf "

. Revenues were pos. it i ely impacted by the Kansas retail was out of service for 66 days for scheduled refueling and ; -

lectric annual sate mcrease of $28.* milhon ($25.1 mil- maintenance.The cost of the outage was a roximatelp lion effecthe September 30,1985, and an additional $3.1 $5 million and is included in the amounts s wn below,i g million effecthe Nmember 18,1985) and the Missouri which are the Company's 47% share of the operating / m retail electnc first year rate increase under the phase-m expenses incurred at Wolf Creek since commeinal ,

plan of $25.2 milh,on effecthe May 5,1986. operation.

The decirase in steam heat and other rewnues in 1986 is due to a change in the product and process of a major 1986 - les steam customer which was instituted by new ownership (Millions) ~

in the fint quarter of 1986 and a decrease in the number Fuel $ 22.0 $ 9.2 Other operation $3.6 9.6 ofsteam custoiners. Maintenance i 1.4 2.8 FUEL COSTS nepreciation 38.7 16.2 ceneraliaus u 2s Average fuel cost per million BTU decirased to $1.050 $H4J $403 Ltal in 1986 from $1.333 in 1985 and $1.479 in 1984. Genera-tion from %bif Creek beginning in September 1985 Net kwh generated (000's) 3.264.338 I.384.305 accounted for 26% of the 1986 and 12% of the 1985 total BTU's used in electric pnxiuction. The $.65 a erage cost ' See Note 2 to the Financial Statements for additional

. per million BTU of nuclear fuel, including disposal costs, information concerning the deferral of costs related to

.WolfCreek.

23 '

.,A... .......,,..g . . . . . . . ., , ,

,7 y n. w3 . - NR M

c. kp=+> y% @f gk - \_ N h% NY [ 1 A

? .

q ,,s.m, ,

• 4' +[ww &. . Sp xc?;;& y $, ) N,,

3' , .

%) n"\,;e ' 'w'b&.--

- i.

mm , a mm , ; ,

n a . .- f . ,,

lL / ,M ,L;Mi c%f;. .c..

n 4TFiIElk OkRATIOh ENPENSE" on ihe KCC alleged excess capacity, as of tideffectiM

' TUtlEr opstation expenseMidding tinit associated dates of the new tariffs caused net AFDC to decreaseL77% J ^ j c" iwith Wolf Creek, decreased $9.8 million (9.8%) in 1986 during 1986.The increase m constniction work m prog '

band increased $16.6 million (20% ) in'1985. The 1986 ress at Wolf Creek until the September 3,1985, commer-l y

recording{qo l decrease results mainly from higher regulatory expenses in' 1985 due td costs incuned for rate ' cases and a one-time cial cany operation ing costs on both date .

ahe and the subsequent plant'and defei red Wolf Cieck

1985 accrual for bonuses payable to bargaining unit expenses c used net AFDC to increase 13% in 1985.; i Up  ;

- E employees upon the signing of new sollectise bargaining EARNINGS PER SilARE5 -M ^-

Y ~

agreements. In addition,1986, expense tieflects the reduc- Earnings per share, dcluding the liheii nonM$ slo '

tion of pension expense'due to adoption of FASB State- credits, are as follows:~ . -

> MM ' +

mentNo.87--Employers AccountingforItnsions. '1986 h h9tM 119841 @ %

MAINTENANCEMG S > , 5 Ne Earnings per share (EPS) f , $ 2.80 i f $ 4.414 $ 4.48 3 , t,

.- ai 1 ~ " . .. Less: Net AFDC per share ($V.90- 5$ 4.04 E V ?$ SJ4 2 mJ '

Main. , . -tenance expense, excluding'that incuried at Wolf Net dererred woir Creek ~ . . .w  ? ,8W MV

Creek, decreased $6,0 millson (8.8%)in 1986 and in- expenses per share . . 7$dl2j h*

• 1

- ' : creased $10.9 million (19.2%) in 1985.The 1986 decirase 51PSC phase-in plan '

/;,. [p$ Q.27J ~L%4 ' bdh. s ni i teflects a reduction in transmission and distribution per share ,

?$ d54 g

?maint nance.:The 1985 insurase reflects a<klitional cost . Net * ' 3

$-1.24 @ y , \ '--$' ;10 Q 3$ w 4'

> of boiler and tdrbine <nerhaut expenses jgenerating' units dur,mg 1985.m:/ o

at seseral -

m --

• The m. crease m 1986 earnm.gs per sh<are,~ excluding

~

the abose non-cash credits, reflects increased rates,s

. =

7'"'

-E

,~

"iNTERESyEXPENSEFM .,

increased kwh sales, anxi reduced fuel expense.Thef .

6The'deEiease in liiteEsf $ pense during 1986 reflects decrease fn>m 1984 to 1985 is prinuarily due to iscreased 1 / .

. inainly lower interest rates on variable rate debt and a operation, maintenance,andinterestexpenses& ' %

decrease in the outstanding nuclear fuel lease obligation Earnings per share iri 1986 hase be6n adversely'imse p

. resuhing from reimbunements to the lessor as the fuel is pacted by the denial by'the KCC arxi the MPSC of a @# C consumed in the reactor.The impact on interest expense return of and/or return on part of the Wolf Creek imest H _ M of new bonds issued in Sep'tember 1985 and December ment and the discontinuance of accruing AFDC on such 9 , 4/

1986 was offset by the early netirement of borids in Oc-

~

amounts. See Note 2 to the Financial Statements fori .

'tober 1985 and. August 1986.y , [ ; information regarding ra,te matteny X 'f e iInterest expanne increased in 1985 because of greater DEFERRED CHARGES i '

%- ,?44 ' 3 b% '"

. amounts of outstandin'g long tenn debt. Tids was par- The increase in thS assst Defebed IncomeYaxes isi .

tially ofTset by decreased interest on short-term notes due mainly a result of deferring the income taxes a'pplicables  :

to lower lesels of outstanding short-term debt and lower to an Internal Resenue Senice appeals agreement whichi rates." & >  ;- C. treated the settlement of ur:mium litigatum as inco.me forJ -

OfFIIER INCOME ~AND DEDUCFIONS-

>P '

tax purposes ' ' } %J MISCELLANEOUSg ; '

The mcrease in trieLOthEn Defened Charge s is a' result; _ ' +:, ~

The 1985 Mwl 1984 miscellaneousinet Nfincome taxes of the Company deferring certain mine closing costs ink % ,

includes decreases of $2.7 million and $4 million, respec- cc rdance with the April 23,1986 MPSC' rate ortleranxi p .

thely, due to write downs of the Companv*s '

imestment in reconting a pirmium paul on the redemptum of $50 i J ,

its WYMO subsidiary." $

million of First Mortgage Bonds,12% series due 2009,in ( ,

MPSC RAiEPHASE 1 P11Ni ,

m . . . ., -

August B8&

~

( .'

PROJECFEDCONSTR CTION EXPENDITUlkES1

. In a_ccordanc,e with 'the MPSG r. . ate phase-in plan (see .

< + -

Note 2 to the Mnancial Statements " Rate Matters"), the Projected fhe-year construction. expend' n. ures,exc lud ' - ,

" ~ ~ ^

Company has recorded as other income the deferred cost ing AFDC, are as follows. '

ofeqmty and the carrying costs thereon. Such non-cash Construction Expendituresi i 3come amounted to $167 million during 1986. 1987 1988 1989 1990 ~ 1991; 4 Total NETAFDCs

• otiilions)

DeferN Molf Creek carrying costs were calculated by a1 $21.1 $ 16.7 $ 16.9 $ 17.2 f $ 37.1_-: $1'09.0 the same method as allowance for funds used during su<1 car fuet 14.5 18.4 21.I' 10.5; 18.61 - 83.1  ;

construction (AFDC). For purposes of analysis, net A FDC Transminim represents the sombiriation of AFDC and defened Wolf f^' i i'i 43 sa 14 3 iss ' ss 48.1 .

Creek carying costs, net of deferred income taxes. Net AFDC recorded dusing 1986,1985, and 1984 was $27.7

"[ l,',",$"

ra.inities 45.0 59.8 70.5 66.i 62.s !04.2 million, $121.9 million, and $108.0 million, respectively. stai sx4.9 $ l01.6 $122.8 s112.7 s122.4 > 5541.4

- ~ ~ - - -

The discontinuance of the accrual of all net A FDC on -

the imestment in Wolf Creek, except for carry ing cost s 24:

.aw

y, - - - - - - - - - - - = --

g - -

, . . ~ , . _

( hp -

x -. .

The timing of contmction and cost estimates are sub- service after December 31,1985, reduction of a portion of

? lject to conninuing review ankl adjustments. Actual con- the imestment tax credit ca'rryforwards, longer tax lives -

Ouction expenditiires may vary significantly from such

- ~ ~ ~

for assets, and various other pmvisions.11n response to Jestimatesf requests, the Company has submitted informati(m to the AIPSC and KCC regarding the impact of the Act upon CAPETAL REQUIREAIEN'Ih AND 1.lQUIDFIY s . . the financial forecasts of the Company. Because of uncer-

.Ths Company currently; estimates that it will be able t tainty regarding what actions the hlPSC and KCC may meet construcuen expenditures wah internally-generated take on this matter, the Company is unable to predict the e funds. It is anucipated that funds for matunng debt impact upon the Company's cash flow, filed tariffs, or through 1991 and the preferred and preference smck h -

P .ase-in l>lan J sinking fund obligations will be provided fmm operations

or short-term debt.i g4p gg;gg gg.gg -

, million ofits securities that will be~ redeemed or pur-

' Uncut iinties which affect the degree to whigh these

, chased in the first quarter of 1987 by~ temporarily utilizing '

(capital reqturements wdl.be met by funds provided short-term debt. .

from operanons mclude such i ,tems as the impact ofinfla- See Note 2 to the Financial Statements for discussion

uon on operatmg expenses.,the level of kwh sales, regula- regarding rate matters,' the impact on the financial state-tory l acuons and the lesel of mterchange sales w th other ments from a significant write-off required in 1988 as a utihties. uence of FASB Statement No. 90, and further yThe provisions of the 1986 FederalTax Reform Act conset!e powib amendment of FASB Statement No. 71.-

mclude a reductjon m corporate mcome tax intes, chm.i-ination of the imestment tax credit on property placed in COhlN10N STOCK PRICE RANGE

~

PREFERRED AND i . .

PREFERENCE STOCK DIVIDENDS -

1986: 1985 Quarterly dividends on Picferred and Preference Stock

' Qua'rter  : High . Iow ' liigh low were declar'ed in each quarter of 1986 and 1985 as follows:

.First . 29 1 , 22 W ~ 24 19 %

! Second . 129WL 23- 24W 19 % Cumulatsve 1. nCumulative No Par LThini 32%- 24 %~ 24 W 18 - Preferred Stock Preferred Stock Fotnth - 130% . 26 % 23W 19 % Series ~ Amount : f Series ' ~ Amount

i. Conimon stock is listed on the New York Stock . 3,gog $0.95 / . ~ $10.70* ' S2.675

. Exchange and the Slidwest Stock Exchange. 4.00% 1.00' 2.33. c0.5825 1.20% l.05 . 2.20s .0.55 NYSE Symbol: KIT 4.35% :1.0875: '17.05- 4.2625 4.50% _l.125 ^ )13.251 3.3125 i.'

COilhlON STOCK DIVIDENDS 7.72% . 1.93 12.875? 3.21875

~

Common Stock dividends were declared as follows:

Cumulative No Par

[- Quarter ' 1987- 1986 1985 Preference Stock -

f .First. ' $0.50 ~ $0.59 $0.59 Series Amount Second : 0.50 0.59

$ 8.00 $2.00 .

~ Thini 0.50 0.59 12.75 3.1875 i Fourth 3 0.50 0.59 All dividends paid by the Company in 1986 kere deter-mined to be dividend income and no portion was considered a return ofcapital.

• The $10.70 Series was redeemed in August 1986. -

l 1

5

I, ' <

-o ._

s

^

. , -d

- - lheses City M& O Li$ Comfn' -y[ ~

~ , ::-+ c+ q

+

p 3 NQ- ,_

,}l n

%h;,

! leo ' ' 1979 :I

~

~ T

, .g geenings " 1986 - 19M5 ' 1984 1983 19H2 19 81 - ' 1978 -1977 3 '1975 -

" Openseing " - (000'l .s

llectrw s , '. $ 654,387 - $ 583.183 $ 570.538 $ 553,370 $ 475A02 $ 465.825 ,$ 440,182 ' $ .365,084 i $ 313.787 s $ 266.053 i $ 234.297 '

lq1; ' Steam heat a _

10,403 13.508 12,856 9.173 9S27 5.886 ' ' 5,783 5.79t ' e 4,876 - 4.609 - 2.867 3* 1otal - 4 583.414 . 562.543 485.629 471,718 445,965  : 370.875 E - $18.663 - 270,662 - 237.164

, t 664.474 ~ 7 596.621

, Operessag EmpemeseffMmJ c ,

, , Operamm - .

229,887. ' 248.887 240.824 743.076 ' 207,974 180.474 174.661 ~ -186,134 . ,: 135,450 380.510 ' ' 92.945 -

w'R. i Maunenanre-

= 73,500 , 70,841 57,092 53.358 62.496 '. 54.305 52,6807 54,315 j 1 30,359 i :29,496 " 22.275 45,215 44,962  ? $4,h68 - 24.629

Deprusassa.. '. 84.177 .' 62.443 47.564 46.319 41.733 4 33.174 ', - 30.356

'M  : Taues _

' I 06,200 ,

~

45.577 5 ' 42,088 l~? :26U13738.511$ '35.519.: [lhk35

. > fausne ... 62.560 69.568 61.962 - 39 946 ' I 19.841 +

J/41,914 9,569  :

m

~- i Cenrral ' . , . i 64,991 :- '59A91 55,741 53.345 52,075 51,908 -- 47.956 z $1.822 -

4 1 Deferred Wulf Cavek empenses ; (6,9041 -(14.344) - - -s ^~. .-- 7J r - - w -

r Total I 5' " -- 5 t l A39 190.278 470,786 458.060 - 407,706 - 377.226 - - 359.118 ~ 326,800 1. 263.631 l -224,336 -' - 191.512' Oyesesseglacesset000U -- 153,931 4 106.343 112.628 104.483 77,923 ' 94.485 86.847 4 44.075 : + 55.032 . . 46,326 - 45.6527

~ Oiheelse.sweed ,

. . Dedeetiemsf000V :. . _ s f J Alk=sn(e for eqsuey funds 1 . . ... . t

. .' - 3,983 '

- (1.345) 64.590 78,415 59/09 36,089 . 29,073 1 19.775 ; f 19,467 ; 512.543'?

'1 7.592 1 iarddurmscosmeructhw. .

Delerred Wulf Crech carrying comes - 38,407 ' 41.522 ' - - - w: '.

.-(. >. ' -- --

p c MP5Craiephase-enplan ; ' 56,714 - - - -. -.

• e - s' i 304 ' ,* (874) ! - S (39)

' ' 744 - - (2.419; (4.293) 23 (63) . 327 i ..(122) - 185

. Mmellanecun(act)

. yo,,[ ' U. s -- 54,32g - 104.683 - 74,122 53534 36.026 - 29.40G . 19,653 Li 19,778 c.11.669 $ ' 7,553' --' 4,168 ~

5 $ laceaebeforeleerrest ~ ;s" . - . . ..

. Charges t000b , t 207,558 _ : 211.026 186.750 151.317 113.949 123.885- 106,500 - ' 63.846 1., ' 66,701 ~ T53.879 : 49.820

lesenese Cbergestooin) i - .

, ..y .

> Img4erm drhr c

~

97,747 98.824 86.643 70,*.26 65.260 . .55,232 2

.48,864 ', ..,40,612 - ..32.217 C , 26.856 6 9.23,453 :.. .,

. 8.299 1.778 3,343 4.332 6,021 3.8% 1 4.781~ ,3.408 1 ' ' 1,969 ( ,1,066 < 412 -

' . Short term notes f .

, Miwellarwous' 1,273 1,271 1,397 ' 10,489 . t 7,151 2,486 l1 '; 341 i. - 268 - ;255

3 l 1.866 1.365 ,

'- Alkmsnre for borroned funde . .

uard durmg construrunn 179 (46.062) (55.950) - (43.89h (39.670) (24,878) ' (22.997) - (19.f t!)I - (10 750); (5.904) - , (4.022) '

' linal L 101.003 55.905- 35,309 31.836 33,008. 44,739 -. 37.799 27,295 J - 23,777 22,236 - 20,198 :

4s - i~aceaebeforeCameleaive -

, Eflect t0009 . . ,_ 106,450 155,121 151.441 126,481 80,941 79.146 ' 68.70l' 36,551' 42,924 - 31,593 . t 29.622 '

Cesselasive ENect e(Chenge 5 in Revenue Recagention(WWV -- - - - - .- - E 6 f. m ' '#

' 7.202 }

s ' NetIncesse(000b' - -

106.480 155 121 131,441 126.481 80,941 79,846 1 68,701 - - 43,753 L 42,924 . 31,593 - J 29,622 Prefereed and Pro 6meence Seesk .

Divideed Rege . 19,973 21.917 21.570 18,193 13,749 - 12.418 ' 80,573 " 8.789 , < 7,545 ? ' 5.124 ;

- (000Vf 21,867, ,

D'Appuceblese8% -

. seect recoy 1 ' _$_86.4 _05 $_133.254 f_l*9.524 $_104,911 $_62.748 $_I6_5,397 -.- S_56.283 [ $ _33_.1R_O T$__$4._20_5 ^ $_' 24.048 $ $_' 24.498 - -

. Eereings Per Common Shere . $ 2.80 $ 4.41 $ 4 48 $ 4.15 ' $ 2.79 ' $ ' 3.22 ' $ 2.91 1 $ ' . 2.01 i ; $ m ' 2.36 3 $ ! 1.95' $ , 2.26-Rosie of Earninge se : . .

. " Flaed Chargee . 2.67 - 3.08 3.37 3.43 2.62 ' 2.75 2.80 '  ? 1.99 '. ,3.01 1 ' 2.78 ! , < 3.04 *

. Reeere enherved Equiey . 10.1% 35.9% 172% 15 7% 11.7% .- 14.2% ~13.2% 7.0% ,10.5% f 1851 10.0%

~Capsalismeien Dese

'Commen Sesch Equity (000V '. $ DJ0,252 - $ 838,394 $ 751Jt4 $ 666.273 $ 535,192 $ 459,313 $ 424,852 3 373.224 '* $ 327.260 $ '282,106 - $ 244.938

herage sharescusssandmg 5 s  : 34,942,149 30,196.715 28587,407 25.278,3nn 22.510.368 20,302,723 '19,373,655 16.514,110 .14.466.483 > 32.324,199 .10,817.304 s Cash anidends per nhare y ' $ 2.09 $ 2.36 $ 2.33 $ 2.17 $ 2 01 -$ l.88 $ 1.79 , $ -- IJ6($ l.78 . $ : ).64 $ ' l.56

~ Preferred Seech(fXMh) : . S 92.000 $ 112,000 $ I12,000 $ lit.fx10 $ 112.000 $ 112.000 $ 112,000 ' . $ 112,000 --- $ 112,000 L $ .182,000 $ " 92.000 =

IWdend requiremenis(000's) t '$ 7,700 $ 8,414 $ 8,414 $ 8.414 $ 8.414 $ 8,414 $c 8.414 $ . 8.414 . $ ? 8,414 - $ - T 7,372 / $ 4.945

[ kerage dnidend rate , . 7.3% 7.5% 7.3% 7 54 7.5% ' 7.5% : 7.5% 1 " 7.5% - 7.5%  : 7.4% 6.7% 1 Freferred Seech - , . . . . .

.- (Redeeniable)(000b* ' . $ 65,676 $ 65A36 5 65,996 5 56,156 $ 56,316 $ 3.676 . $ 3.836 '$ . ~ 3,996 ' $ ' 4.156 i $ I J 4,316 f $

~ 4.476 Dnidend requiremenis(000b ' $ 9,26d $ 9.270 $ 8.677 $ 7.997 $ 4.592 $. 148 $ 153 $- 159 >$ 166 : $ ' 176 '$ 179

.. . - Aserage disidrnd rate -J

~

14.1 % 1411 14 1% 1421 14.7% 4.0% 4.0% , 4.0% ' 4.0% ' . 4.0% 4.0%

.2- ,

Frederence5eeck n ..

. (Redeemsble)(009ba ' $ 20,833 $ 33 333 $ 41.667 $ 45,833 1 50.000 $ 50.0n0 $ 50.000 $ 25.000 $ 25,000' - -

IWdend requirevnents(000M - $ $,009 $ 4,183 $ 4s26 $ 5,159 $ 5.187 $ 5.187 $ 3.851 $ 2.000 $ 139 - -

i heragednidend rate 88.71 % le 754 10604 le 39% 10.38 % 10.34 % 9.73 % 8.w% , 8001 -- -

Imag-term Debs (000b? $1,830,134 $1.136,596 $1.048,117 $ 805.644 $ 767,616 8 662,050 $ 612.477 $ 588,876 $ $03.044 $ 436,372 $ 384,118 e inserne en deba tor 104 ' S - 97,747 8 98.824 $ 86,643 $ 70,126 $ 65.260 $ $3.232 $ 48.864 $ 40.632 $ $2,217 . $ 26,856 $ 23,553 t

herageinarrete rase f 8.76 % 9.164 9.55% 9 13% 9.404 8 88% 0.27 % 7.584 - 6 98 % 6.784 6.35%

Other Dean and Raeles

' Uuiny Plant-Grnne addasnnsf00th) $ 70,543 $ ' ',1.075 8 4h2h[9 d4 636 $ 207.038 $ 173.488 $ 156A67 $ 234,818 $ 188.721 - $ 168.285 $ 126,014 Tosal Anetsf000b ! $2.701,894 $2 a4.058 $2.424402 $2,071.015 $1732.227 S t.617,781 $1.538,978 $1.391.038 $1.166J60 $1,00H,814 . $ 841.502 Ikmk hlue per share $ 27,79 $ 27.10 $ 25 29 $ 23 53 $ 21.96 $ 22 25 $ 28.12 $ 2 L.30 $ 21.90 $ 21.75 $ 21.64

" ' . Cosemonhh kquny Raua 48.8% 18.5% $75% 39 55 36.0% $5 7% 36.1% 342% $3.7% 34.2% 31 8%

~ - Cornmun Scoth Price High $ $2% $ 24% $ 20 % $ 22 % $ IN% $ 16 % $ 15 % $ 18 % $ 19 % $ 21% $ 20 W

cW $ 22% $_ __ _ l,8,_ ,, $ in $, 16($ _ $_ _ J 3 .l _ !!% $, 14 % .$ 16 $ 18 % $ 16 %

J IwInhag emonute n be rederord er tunwd end ruerent satuntws.

-261 l

l

i ft f cd .-

f:) s _~ ~

pf d (Q y

i p .-

~

n c, . ,o-

.,.y

., -s  !$. -

[

-e g s

> , - . y , ,w.g. % > t_ -

e

^^ 1 - y )^ y e -

x >

( * '

^

ftl

.< , - _4 <- . , _  ?

' 1979 ~,~ n 1975 /

. ; f.leeeric $ les statistice '1986  : 19n5 ~  : 1984 - 1943 19182 : 1981 , - two- '3 <-1977 ?

r T1936 5 f '.;

Raemmes(Opfnj -

. A .. - l[4

, . - . .. . _ _ .. . . . _ . . ,. .. m. .. , y . . - . , .

- Resedrmaal ; $ 233,398 '.) $ 200.839.: $ .1%623 ~ $;,199.713 $ 160.364 I $ fl54.916 T $ 161.973 J. . . .$I121,170t $1fIf 972,j $ J 93.3439 $1; 84,382 C Ownnweri,d " 289,204 , 254.535 f ' 24tho$ ' 227.286 - 203.904 J" ' 192,526 ; ; 176,505 1 148.120 t ,124.0#3 % j l07J38 ; , i M.Se6 -f /

Imlue rial . Il0J73 - 105.145 < ; 105.816 1 93.963 86,953 ( ^ 94,164 - 1 80.821 ( 76,956i ~ 61.489 A L 50.914 7 - M]b j 6,398 ., . ' 43,I05

A$,ateI %~

g

, ; Puhew sarret and highway bgh6ng - '43,842 i ( 12.127 7 yiIfo4 L'ith!S) 9416 c 9.332 . ': 8,323 1 7.7,043 E- 6,22tl.{ $j Pubiu authwars - gemer c _ f .. ' ' ~. . % . l ' n '.i ?"' ...._ c , ....M fe .x ? $ ,

f' i .. andlightmg

. L to y g 96., a 97 ; , 1 89 : * . J 86 m ,1 82 i . N "75 1 a- 69 L ( _ 74 }.% ' 46 ii. ' #86 D '~' G '

? Othereiror:ruidans 5,167. 6325; ,II.754 ? - 17A7s 1; 112.6310 5  : 12.648 c ; 10.638 ; '9.9946 J 8,3e0 ) 76.1864  ? 5.915 6 1.q.y v ,

r m#

! Tv.al -- 651,245 ; - 579.267 ~ ? $66.899 ' ^ 549.744 473.554.. ' 463,672 i , : 43A,337 ; 363.352^ '. 312,20s _.. ,364,644 e . ae a

. Oiher centric rewnues 3.142 '3.8461 ' ' 3.659 '- 't 3.626 ! < 2.248 $ ' 2,153 ', ' - 1.845 * '-IJ32 '., - 1.579 ? r 1.4001 c 23",876-1,421 9 .' < f .,

L Trn4 E$ e( '

.$_ 654,387 f $_583,113 2 $_570,558 $ 551.370 f $_475.P02 l . $ 465,82_3,7. $- ,440.lN _. _

. Sales in Kilowets Hours <000U . ,. .

r- .

f ..~' .. .r.. . , . . , .l 3&

L Rendetrial ' 2,839,380 z . 2.657,018 e 2.625.440 ' ? 2,719,062 ',t.37s.647 / b 2.345.646 y 2An9.M7 T 2.254.962 . ;J 2.465,782 ;l 3.254ABBM 2.198,A09 i ' L M:i i

• i

' ! Comnwerial ' 4.034,40$ : ~ $J57,144 S.579,710 ' 3,498,936 f .S,339.673 L :) S,258,235 i 3,338.185 ^ J S,143J10 ? 3,182.67S :13A88.500$s2,ABBAOS 2 b'

- Imluminal 2,246,131.12,248,524 . 2.272A57 . 2.039J36 L E I,959,431 < 2,$26,664 i'2,141,924 : ( 2,383.204 i: 2.302.619 ' : 2,147,388 l 71,900,230 i . [

Puth wrect and highway bghimg 69,277 69,097 . - 67J07- l 66J441 -66425 3 .;66.308  ; 67 172 . 1 66,561 968.245 m 7; 68,3n6 ( f E6A14 36

.. Pulic aushanen - poner , .. . . .

. . . . o. . .

. . ' . , , . rN ' _ . . . <

amt hglumg 1,604- 1.652 1.6R7. ' - 1,569 l 1,657 1 :1.634 m _ E I.693 ' ' m 1.876t E 2.710_ ' .2,%2 N .J 2A57/

C,hrt etertrw utilnes 113,I34 ' / 160.174

. 260,575 4 ' 410.338 325,997 327.022 ; ' . 355,154 ' i 32A.0721 -~ 336.916 " 317,536i ' 302A42 C; . ,<

^'s

]

tad 9,323,859

,--w f i 8.M3.609 ' . 8,807,576 ' : -BJ.3. 6.379 . 8 072,.030 . -. 8.318.509 > - 8 593 59,5 -- -

. ' 4 8.218.345 ' 8 358 950 ?-'c . - 7.90s.485 4 7,486.298 7, < 3

! ___ .8 i _ Average Numberof Customers s , . , , .. . . . . . - . . . . , . .. 14. .- . _, fh g,.'s . . , , . t x (W .y (% 4 h Residennal 851.547 ..124.I33 " e 315.287 ^ c $09.909 1 .,306J54 : ., .,.301.417 ? : 298.411 : C295A02 .'tes.SM -- / 394,598 i I Canmenid 43,293 c--  ; 41.947 ' - 40.826 : : 40.550 J 40,065 . y~ ,304.683 c39J58 J ' 3 33.984 ' ! $8.372 m ? 38.713 ' d ' 38343 / 4 D30.

fnduurial 2,558 , . 2,588 2.528

'  ; 2A88 " .;2,476 3 ' 2,$59 , ' . 2.215 ' l 2,142 i % 2,121 I YY 2.084T 7 2ASSU 3 Puhiw ineet amt highwa, hghams .122 - .123 L s 123 1 ,lto 1 ^ 1203 4

' 122 1

~

. 123['-  ; 123 , _ 123f " E.122 f O25 b * ,I l Pubik authmm- pwer  ?- J.1 . 3 . ,

.," - .. 3 . .>. M ' flS -

' - . and lighamg it i e il c 11 II .  : II II -  : II J J U , ;11 ' ' ,' 16 + !12_i</ 9'

%Il9 i - 11 [M '

C.hcr elretrw utiluri 12 ' 14 17 .- - 19 ' " - IS 4 IS - r 14 ' -:' 16 'h 15 -

T<eal 377,543 a $68 816 ' $58.792 ' ' $,5,3.097.

' .N 349.,441.?

S46,876 c -3  : S$4.387 't .: 3_20,952 <' S $34.536 s S42.J64 -' -.-.3.9.075.:

4 L -

i -, - . - . -. - . . t j f

Bleshlential Sales . . . .

? 7,700 J . _.

17,556 .

- . 7%

,8,464i

.M " f m 4 . -e]

Aerage kmh per cunaumer 8,565 ' 8,197 . 8.527 8.774 t ' ? 7J54

• 7,950 Ti 14.0074 , f TJi7 ? ' [ d t

h_e_t_ age _m_enue -

per kmh - aense 8.229 '- 7.559 y 7.4A9 ' J 7.345 : ~ 6.742 ' ' 6.604 " ' 6.023: . A 923 - ' ,- S,373? '

'4.541 h,,D:c :i 3.880 4 o c Imed Stas.stice .

. , . . . . . . . . ., s- ., ,. _ . w?. .C i } fc . > .s . .. ..I ..

i Generaeed(netH kwh(00pu 12,115,394 11,170J02 110,156.804 : ; 9,I9I.332 J 9.138.284 ._470,762.030 :.10,095.806 l 7,535.5914 (8,581,224 Q Punhased - koh(oosnj 13,212 ' 12,504 ' I2.826 _- 12.559 _ . 81,846 _1 !!.051 ; . yllJ68a 86.Get ( ) 194.250 a W3 L frienhar;;ed(nrO kwh(000b (2,159,836) : (1.589,1151 " (651,560) 893.436 ' - (339.933) tl.908.379) ^ (902.501) . , .1,1%I04 ;79,993 Ll M218.42Itil,9J1 ; y; pf 'lo.095)f:' 164.996 ~ - ,,j' -

Total kwh(090'O 9,518.070 9.397,327 - - 8,609,

.,9.--,969.~,270 - " 9,.594.091,

- - ~ am:=====:aur -4i97i 1r----. 8.86430,.2.: - 9.205.06l .---~.3.s.i.l -. !6me ?.,9wan 011.836 s wT.8,411.576 - _ i' 8.006.407j' \ .,

bl:xmum nra hamely demand in . . . , . -

". p 4 s s M i kemann(mmter) I,490,000 . 1.446,000 - 1,388,000 'l.435,000 ' 1,315,000 1,165,000 4 ..

Maunum neilumtly demamlin -.

1,304.000

, .. s .. . .

.11,299.000 .; - . < I,317,000

.'?'-s 4 (1.2E0n0

- I.255.000 _. -- V (Vi V ..

keswain(mmrwr) 2,373,000 _ !. 2.235.000 _ .1 2,297,000 f ; 2.324.000' -2,167.000 _ '; 2.123.000 ; 2.198,000 ' I.964,000 " X 2,097.000 2 C:1 geo.out Q l.930,0e8 ; p' .

Net generating rapuhday 6n .

. . , .. . ~ x . .t.. ,m. .y S .!

'2.477,000 : 2.634.000 .2.774,000 . 2A84,000 - . 2.839.000 f 2.360,000y 2.3i0.0u0 d 2A75,000 K 2.361,000 )

kibwaits(summer) 2,937,000 - 1,937,000 2 Net upa6ity h kilowatts 41,000 -

. . P W: ,f

95.000 l J (101.000) -_ . . . .2114.000 m

.m.

(sold) pun hawd(summer) 41,000 151/100 ? . 41.000 - .d , . (200,000) . . U50,000) f f..

Bru per nrt k=h generated 10,754 .10.635 - l 10J56 ~ - 10.874 , 11.138 , 11,119 : a18,154 - - II.633 i < ? II.266 l M 61,518 ' x 11.335 - ,

, t-

@ ,]yM  ;

Empign Date _ _

- -M<

$4tanrs mi nages tovou $ 96.399 '$ 97.425 $ 92.950 $ 89.246 , $ .67,907 $ '80.239 . $ , 73402 ' $ n 6s.465 t $ $4.493 S $ c 56.380 3 $ ; 49,644. r I&nnme mibencins t000M 9.4e3 II A97 - '13.377 15.060 14A73 ' l2.759. J 81.670 6.868 . 7,132 1 '

. 9.947-[ ' 7.878 ] i

$ $ 1,0M,922.. $ 106 327.m' $ -.. ,.104 306 . $ 102 3A0 . ' $ 92.998- $ -- 85 .272 1 $ - - 78.4121 $

68.,.554.' .',8 64 .258 $ ( 56 776.?

. 105.,.882

- . .. . . - . . -7 7,37.,s

~

Numhrr ef empkween. December 31 2J71 . 2.863 _ 2.838 2 2,939 -' ~ 2.957  : 2.928 . s ' 2A56 7.2,868 ? ( 2.726 ) e 2.572 ra '- 2,522 ; 2

% 4 <g' '

s

~ 4 Employee Data Adjusted

• s

• s 5almes abageh00D $ 10$J52 . $ 93.627 $ 84.9M6 ' $ 81,058 $ ~80.194 ' $ . 72.62* - $ f 66,469 - $ -. 62.569 ' $ t 49J55 / $ ._ 51.716 a $ 46,491 .

g; h' IVnewm and benefits (000y 10,712 11.092 12.350 ' 13J92 . 13.231 11.610 i 10,751 ' 9,282 ' " 6.287 - ' 7.359'i #- 6J54

$.~11_5,444 $ 104.719 $ 97.,.3.36 $ 94,850.- $ - 93,475- $- 84.237 -7

$ 7m.220.P - $ 71851 ~ i $

.' , 5.,6 0,.42 . - - 5 $ ' 59.075 _4 $ < $3 245. i . .

r Number of empkween. December 31 3,039 3,069 2A33 2J08 RJ20 2.694 72.628 . ; 2.659 ' - 2,577:.

2AI4 ' + 2.382 c

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/ARTHURJ DOYLE* L. l GEORGE E.NETTELS,JRA - WILLIS C.THEISh ChairmanoftheBoard, _ L _

. President and ChiefExecutite Oficer ? W Chairman ofthe Boaid[

) President and Chief Executite Oficer/ [bicNally Pittsburg Inc. and blidurst Simonds-Shields-Theis Gmin? ' -

WILLIAM H. CLARK-  : Alinemis,Inc. Company 4 l , , .

President and Executite Director Pittsburg, Kansas . . . . -gmin merchants and u; ,

Urban LeagueofGreater '~~!"Ki naring, manupcturing, unrehousemen b . . n.

Kansas City ; ' construction minemiprocessu,nga;nd: ROBERT H. WEST *

)o . quarry opemtions ! ' ' N 3;,

-community service agency . l Chairman ofthe Board,j '

WILLIAM D. GRANT *  ! LOUIS C. RASMUSSENe~ 1 President and ChiefExecutite Oficer h I N Chairman ofthe Board "Executite Vice President-Finance l ': ButlerManupcturingCompany) 4 Business bienYAssumnce and ChiefFinancialOfficer J--supplier ofnon-residential Company ofAmerica  ! GEORGE A. RUSSELL _

.buildingsystenu, specialty;

-insumnce  : Chancellor; .' . .

lcompnents andcorutruction '_ ~

Uniirrsity ofAlissouri-Kansas City

S"t*5. ~

J. ROBEKTMlLLER Executite Vice Pre 3ident-opemtions 1 EUGENE SL STRAUSS * , _ ROBERTK.ZIMMERMANs .-

and ChiefOperating Oficer. . OwnerofSimuss : .

lionomry Chairman ofthe Board [ . m ,

egenemlinsumnce agencies: ~

.LINIM HOODTALBOTT President

, ROBERTA[OLSON y ,s .,

Clearinghousefor Alidcontinent Adt'isory Director p . ,,["+

[ Retired Chairman oftheBoa

~

. a Foundations . .

yinformationexchangefor * .. . .

philanthmpicactivities  :

• Member Executin Com_ mittee > + ,

y 4 nk 4 AKFIIURJ. DOYLE,63 A' DRUEJENNINGS,40

. ' RONALD G. WASSON,41 E .

Chairman ofthe Board, President and Senior Vice President.3Iarketirig & Vice President-Administmtitr Services ' - '

' ChiefExecurite Officer PublicandEmployee Relations ; ' 1983: ,

1973 1980 KENNETH E BALDWIN,60f -

_ .l J. ROBEKr MILLER,62 . BERNARDJ. BEAUDOIN,46 ' Tirasureri <

m a, ,

Executite Vice Firsident-Operations ' 17cr Pirsident-Fina'nce 1986~

andChiefOpemtingOfficer ' 1984 NElL Al ROA'DMAN,41 N 1 1971 JAMES L. IKX;AN,56 . Controller 7 LOUlS C. RASMUSSEN,58 Vice President-Engineering - l980 '-

Executite l7ce President-Finance 1984 MARK C.SHOLANDER,41 '

and ChiefFinancialOfficer DONALD M. LANDES,55*** GenemlConruell 19Il 17ce President-Communications 1986 '

SAMUEL P.COWLEY,52 1973 ,

Senior lice Prrsident-Corporate Afrin, EDWIN B. McBURNEY,60 '** Listing includes age, title -

Secretary and Chiefligal Oficer Vice President-Tmnsmission and and year promoted to officer '

f 1979 Distribution . ***Mrl Lmdes announced he will .

J. MICHAEL EVANS,41 1984 retire Marrh 31,1987.;

. Senior 17ce President-System Ibicer JOllN A. MsWBERRY,59****

~

0 ""'

• • • • Mr. Mayberry took early retire-ce President-Commetrial Opemtions ment on December 31,1986.

WILLIAM H. MILLER,52 Vice President-Custor.ner, Employee and Public Relations 1980 i

. . 28

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' Kansas City Ibwer & Light Com- and resulted in a capacity margin of( , s Board ofTrade. Kansas Cityleads

~ pany is a medium-size electric utilityL 'about 20.3L the equivalent of a e .

< L the nation in farm equipment distri- = q f and the corp ~ orate successor to one = ' : resene margin of 25.5E In addition ; ' - bution and hard winter wheat' mar- u ~Y .

s of the world's first electric com. - to being a member of the Southwestl M keting; ranks second in wheat floury  : '

- panies, generati ng electricity since <lbwer Ibol, a regional reliabilityg% production arul third in grain x 01882. Headquartered in downtown council, KCPL is one of 11 members j j elevator storage capacity and is the i ,.;

Kansas City, Missouri,~ rhe Company . of the MOKAN Ibol; formed in ~ .- 7 nation's third largest feeder cattle _ ,

q generates and distributes electncnyi 1962 to shareirsene capacity,;  ; s market.V ,

n to about 385,000 customers in a : 1 ~ coordinate planning for additional l p iIn addition to as strong agribusi , ,

4,700-square-mile area located in all : . generating units and expand trans v *% ness base, Kansas City leads theQ s H ' or portions of 23 counties in western  : mission lines. Transmissum connec0

' Missouri and eastern Kansas. Ibpu- J c tions with numerous utilities in' ,

(s cards and the manufactme ofinstruJna 0

^y "

ilation of the senice area is about .s' Missouri, Kansai, Nebraska, Iowa 1 (mentlanding systems;has t O nation's second largest railc,hei,y 850,000. Customen include 338,000 i iand Minnesota enhance the Com-1 enterp -

tesidences.44,000 commerrial f firms, and 3,000 industries, municia l ispanytsystemreliability.

a key center in the interconnected Kansas'Cityf s _ listhethirdlargestproducerof c automobdes and tnacks,and ranks ? " >

4 J.

J palities and other electric utilities.E Lsystem which enables tegkmal and f Wfounh in the numberofconsult c , g , ' fy

' (About 70% of total Kwh sales and; 3 interregionalbulkpowertransac-f cg! ,;ingengineers.KansasCityhas; s Jrewnue are from Missouri custom .- tions among electnc utility systems %dewloped into a major retail mar-h ', _

_ iers and the remairxler from Kansas. SERVICE AREAv @ Wet, ranking sixdr among the 30  : ,S

' ' Steam is produced and distri , 4 if 7 Some 90% of tiie CSrhpanyi busii . j largest metropohtan areas in per (

ubuted to about 120 businesses in -: Jnessis~desiwd from metropolitani l CaPaa retad sales t KansaiCny is also-downtown Kansas Cav and accounts L Kansas City which has' experienced id a maprconwnnon and entenann s , ;.

s

) forless than two percent of total "" C'"*K 5 5M~wm c

- rewnue. if . . . M i toris the diwrsity of the areak indusy .steadyeconomicgrowth; A

&i GENERATING CAPACITY AND~~f r try, reflectedin an unemployment s

- gmgraphicand populanon cenen .,

tTHE MOKAN POOL L ~ ' 4

? rate which has been consistenti ~ #

? below the natiorialav tage:In 986,1 'iofthecmantryand mid-way beten 1The Company's 1986 thtal availa-? 7.imaston and the Canadian border) ' ,i ble capacity was 2,978 Mw, including 2 J theaira unemployment rate awr y - pnsasCityis we tioned

~

asa : ,

nationalhub for .

aged 4.7%l compared with the nak

~capacity 2,937 Mw ofinstalled generatmg and 41 Mw of equivalent )

tional awrage of 7%i m f , =s j # ;of transportanon and communica-2s

capacity purchases.' its' 1986 system j J Kansas Cityis considered tobei

• s peakload was a record 2,373 Mw - i the work!'s agribusiness capital,f ;W_ M uons whuh w ;importantrulem, theareaksteadg 4 _;

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icentered around the Kansas City- <l4

ec n micgrowth.- - - - .

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ANNUAL REPORTON FORM 10-K ' .

nTRANSFER AGENT 3 AND REGISTRARSE -

Copies of the Companyh annual repon to thb Securities ?

• ' ' Common and Prrferred Stock 7 .

and Exchange Commission on Form 10-K will bei . 1 United Missoun Bank of Kansas City, N.A.i '

~ '

provided without charge to any shairholder or beneficial ' ' StockTransfer Dept? ,' 4

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owner of shares of the Companyh stock upon written P.O. Box 64 ' .

request to Samuel P. Cowley, Senior Vice President and . f Kansas City, Missouri 641411 Secretary, Kansas City Ibwer & Light Company, /(816) 556-7883? ' '

1330 Baltimore Awnue, Kansas City, Missouri 64105. c p,gg 3g,Q g'17.05 arid $12.875 Mrferrrd Stock '

1 DIVIDEND REINVESTMENT PLAN - . Kansas City Ibwer & Light Company' Because of the Companyh reduced need to raise capital 1330 Baltimore Asenus the Dividend Reimestment Plan will be discontinued : Kansas City, Missouri G4105) efTectiseJuly 31,1987. Participants in the plan will (816)556-2200 recei e funher information with the March 1987 account statements.

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id28MMMMMME

Kansas Gas and Electric Corapany 1986 HG&E USA TODAY Annual Report ToStockholders LETTER TO STOCKHOLDERS T4e* New Rate Plan Benefits gSetS ptd gTDg Investors and Customers h

s mbattled in 1985, KG&E achieved results on many fronts throughout 1986 and in early 1987.

\ g,911' ' e Dividends were increased 15%, or 4.5&, in the final MS o utS quarter of 1986.

g#ge g e Credit ratings were upgraded.

~

e A plan was developed, and approved by the Kansas

...s Corporation Commission, to eliminate many of the g_EE aZ troublesome aspects of the September 1985 KCC R w =-- Wolf Creek rate order and provide customers with Q1/~ $100 million in rate reductions and delays.

MMY T4Y e The U.S. Supreme Court on February 23,1987, agreed to review corutitutional questions raised by our November request for review of the June 13,

, 1986, decision of the Kansas Supieme Court l regarding the Wolf Creek rate order.

e Wolf Creek Station set first-year power production

. records for nuclear plants in the United States. .

Wolf Crerk's reamlfirst yan perfonnance uns fanuralin this USA TODAY . .

, ad Sepecmher 7, ig86. Spmsors une Ikthtcl, General Elatric, Westing.

! Financial Results Summar.ized house and Danici, uho Joignal, apiptW and halt the plant.

3 erformance in 1986 was affected by two events in

$25 Stock Prices Irnprove*

1 1985 F rst, operation of Wolf Creek marked the conclusion of our 15-year, $1.8 billion construction program. This completed our transition from virtually total reliance on 20 natural gas as generating plant fuel to a mix of coal, uranium and gas.

Second, on September 27,1985, the KCC approved only 45% of our Wolf Creek rate request.

t5 Our 1985 report detailed the problems these two events presented. We will not dwell on the past, but the results of 1986 can be understood best in rebrion to the problems of 1985.

to Earnings per share of common stock in 1986 were 1985 1986 1987 $1.44 compared to $2.13 the year before. But,46& of 1

• On S+conher 27, 9 3, 8 only 43% of our Wolf Crcrk rate rapcst 1986 earnings were cish from operations. There were uus appromt Shoun here is inwstor ressmse to aaons that follounf. no cash earnings in 1985. We expect increased and This returt (fecails results adiemi by the annpany in 19% Common higher quality earnings in 1987.

stock prices are per share for Fnday close. Continued Next Page

On November 25, directors approved a quarterly '

dividend of 344 per share. This is an increase of 15%,

or 4.5&, over the dividend of the previous four quarters. y .

l As a result of the Wolf Creek rate order, quarterly /

dividends since the last quarter of 1985 had been cut in '

half- from 59& to 29.54. We are committed to -

restoring the common stock dividend as soon as .

reasonably possible.

Another response to the Wolf Creek rate order was a drop in price per share of common stock to $9.625 on October 3,1985. By January 2,1986, the price had recovered to $14.125. At year end, common stock was L trading at $22.875. At this writing our stock is selling at ' ~. .e

$23.25. f' Moody's investors Service, Standard and Poor's .

.i Corporation, and Duff and Phelps recognized our 4 a- iA improving f'mancial health by upgrading our bond credit 1 'y -

ratings to Baa2, BBB and 9 respectively. ,

O Rate Stabilization Plan Approved .

ur rate stabilization plan improves earnings per Oshare while allowing us to hold the line on prices i so we can better compete with other sources of energy.

The plan, which was approved by the KCC on March Wilson K. Cadrnan 11,1987, puts us in a position to increase annual earnings per share by about 85$ over the next five years over what they otherwise would have been. By reducing rates and deferring increases, we will enable customers to save $100 million over the next five years. Stockholder, Director Support Recognized in addition to the immediate savings, our customers T t is appropriate to recognize Ralph P. Fiebach, retired can now anticipate electric energy costs with greater Achairman of the board, who was replaced on the certainty. Barring unforeseen changes in our cost of board of directors in November by Glenn L. Koester, service, the plan should greatly reduce the need for vice president-nuclear. Mr. Fiebach joined KG&E in additional rate increases in the foreseeable future. 1960 and was named president in 1969 and baard The U.S. Supreme Court is expected to review the chairman in 1975. He continues to serve as an advisory Wolf Creek rate questions late this year. We do not see director. Mr. Koester was KG&E's key officer this as having any immediate effect on rates.

We will continue to find ways to improve our overseemg the Wolf Creck project.

financial heahh without adversely affecting our ability to James T. Clark, manager ofinternal audit since 1978, was named vice president-accounting in September. Mr.

t empete ns an energy producer. And we expect to report Clark is responsible for all accounting departments.

equally significant results in 1987 and beyond. The continuing support of stockholders has been a Wolf Creek Sets Recud major factor in our success. Your supportive calls and letters, your questions, and your concems have helped.

Please review all sections of this report for more Wolf Creek commercialStation service completed September 3,1986, its first by year ofdetailed discassions of the points raised. Let me know if setting a new U.S. record for first year power you have questions or comments.

production by a nuclear unit. The plant produced 8,922,510 megawatthours of electrical energy. The former record for first year electricity production in the U.S. was 8,699,162 megawatthours.

Wolf Creek ranked among the top five nuclear plants h'~~

nationally in first year performance in the percentage of Wilson K. Cadman time it was available for service, in capacity factor and in Chainnan of the Board and President fuel.use efficiency.

March 11,1937 l 2

f

I

, FINANCIAL HIGHLIGHTS, FIVE-YEAR COMPARISON (Dollars in Thousands carpt per share data) 1986 1985__ 1984 1983 1982

, Operating Revenues . . . . . ............. .... $ 406,340 $ 410,786 $ 410,753 $ 393,053 $ 350,937 Net Income . . . . . . . . . . . . . . . .... ......... $ 67,885 $ 97,732 $ 121,858 $ 107,538 $ 84,663 Earnings Applicable to Common Stock . . . . . . . $ 58,698 $ 83,377 $ 106,495 $ 92,027 $ 70,521 Average Shares of Common Stock Outstanding 40,752,852 39,118,105 34,698,342 29,912,327 23,503,302 Common Stock Per Share Data Earnings . . . . . . . . . . . ............ ........$ 1.44 $ 2.13 $ 3.07 $ 3.08 $ 3.00 Cash Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . $ I.225 $ 2.065 $ 2.36 $ 2.27 $ 2.15 Indicated Year-End Dividend Rate .. .... ... $ 1.36 $ 1.18 $ 2.36 $ 2.36 $ 2.24 Market Value Year-End . . . . . . . . . . . . . . . .... $ 22.875 $ 14.125 $ 17.25 $ 17.25 $ 18.375 Book Value (Moody's Net Tangible Assets)

Year-End . . . . . . . . . . . . . . ....... ..... $ 20.17 $ 20.12 $ 20.38 $ 20.31 $ 19.66 Available Capacity (Megauarts) . . . . . . . . . . . . . . 2,435 2,097 2,099 2,160 2,029 System Peak Responsibility (Megauarts) . . . .. 1,627 1,612 1,633 1,700 1,626 Reserve Capacity (Megauctts) . . . . . . . .. .. 808 485 466 460 403 Average Use Per Residential Customer (Kilouutthours) . . . . . . . . . . ........... .. . 9,202 9,435 9,812 9,901 9.529 Average Price Per Residential Kilowatthour 8.93c 7.134 6.984 6.774 6.05$

Number of Customers at End of Year . . . . . . 247,726 246,017 242,666 238,591 234,972 Iong. Term Debt . . . . . . .............. ..... $ 1,063,464 $ 1,047,420 $ 991,004 $ 753,242 $ 613,781 Redemption Required Preferred Stock . ... . $ 18,000 $ 76,000 $ 78,000 $ 95,000 $ 95,855 Total Utility Plant (Net) . . . . . . . . . . . . . . $ 2,068,834 $ 2,120,892 $ 1,989,013 $ 1,657,203 $ 1,423,043 Total Assets . . . . . . . . . . . . . . . . ........ . . . . $ 2,266,809 $ 2,348,203 $ 2,150,558 $ 1,778,232 $ 1,515,517

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Skyline of Wichita's central business district is constantly changing.

Cunent major constnerion project "dountoun" is the 27-floor Epic Center. Of KG8E's total sales, 26% is usal by commercial customers, .s2% by industry and32% by homes and fanns.

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HIGHLIGHTS o Two static var systems were installed that permit

• At year-end,41 new, expanded or re-opened more efficient use of generating units located away from industries created nearly 1,000 new jobs. Because of major electricity use locations. Our customers will save the new jobs, these firms had qualified for the lower

$1 million yearly through lower ful costs. rates available under our industrial development rate.

o A newly formed R&D Advisory Group is

• A 401(k) savings plan was initiated with the designed to ensure that recent research findings are given amount of employee savings matched by the company priority attention company-wide. KG&E sponsors tied to achieving cash earnings goals. Management pay is research through the Electric Power Research Institute, also based in part on company cash earnings.

an industry-wide orgmi:ation, and the Kansas Electric

• Eighteen employees were recognized as Customer Utility Research Program, a cooperative activity with .

First Employees during the year because of unique other utihties and Kansas universities. Our 1986 customer and/or public service. They were nominated investment in research and development was $1.8 by customers, supervisors or fellow employees.

million.

safety record

• Electric service contracts have been signed with two o Employees set an all-time companfe accidentsm j rper industnal customers. These contracts call for in 1986. There were only 1.5 reportab 100,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> worked. p ssible co-ownership of cogeneration units, an option for helping meet future electric power needs.

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% . d New Company Established To Operate Wolf Creek Station representatives are company officers.

On January Wolf Creek1,1987, Generating operation responsibilities Station were assumed by forEstablishing the operating company does not change the Wolf Creek Nuclear Operating Corporation the rate setting process followed by KG&E and other (WCNOC). WCNOC is wholly owned by the three owners. Each utility will continue to submit retail rate Wolf Creek owners. It is controlled by a 13-member requests to state commissions with wholesale rates board of directors with utility representation determined approved by the Federal Energy Regulatory on the basis of plant ownership. All KG&E Commission.

4 L. __ . _ . . . _ _ _ . . - _ _ . _ . .

o KG&E personnel were challenged by some of the g PT~ '

worst storms in our history. Equipment replaced 1 included more than 225 transmission and distribution C- '

3 poles. i K --

o More than $100,000 will be saved yearly because b' ,

, of suggestions made in 1986 through the Employee Cost Reduction Program. Thirty.four employees received  ;

cash awards for suggestions.

o Accuracy ofinventory control and use of a new purchasing tracking system permitted in 1986 reduction of nearly $500,000 in KG&E's physical stores inventory. Coordinating purchasing and inventory control has resulted in lower costs while ensuring that 4 .

equipment is on hand when needed, such as for storm i damage repair.

3 o Neighborhood Radio Watch continues to provide '

+

an effective community service as KG&E employees used the company's radio communications system 61 times in 1986 to notify public emergency officials of situations where public safety was threatened.

o More than 700 employees participated in the " Spark A Hot Lead" program supporting company marketing

. efforts. KG&E provided key leadership in the newly 1 formed Heat Pump Association of Kansas. Objective of the organi:ation is to promote understanding of the advantages of electric heating.

o Educational films, video tapes and multi-media e Early in 1986 the City of Wichita ordered a study kits from the company,s lending library were viewed by of the benefits to the city of buying KG&E's street record audiences. Eighty titles, including curriculum lighting system in the city. It also authorized a levels kindergarten through 12th grade, were used more preliminary study of taking over KG&E's transmission than 2,000 tirnes by 500 teachers. Use of materials on school cablevision mcreased the monthly audience and willing distribution system to sell its street lighting in the city. at system The its combany ir market is

, average to more than 200,000 students and adults value but is not willing to sell the transmission and o Project DESERVE, established by KG&E and the distribution system.

American Red Cross five years ago to aid older and.

• Wolf Creek Generating Station was accepted in handicapped persons, has now provided $850,000 in December as a branch of the National Academy for emergency energy assistance. Nuclear Training, an industrywide organi:ation o Refinancings during 1986 will result in pretax established by the Institute of Nuclear Power Operations savings of more than $13 million in 1987. (INPO) to promote excellence in nuclear plant training.

KG&E MISSION: Profitably Market Energy and Other Products Profitably means adequate compensation for our owners and investors for the use of their capital.

Market means to identify the needs of our customers and to fill those needs.

Energy means that KG&E's main business has always been and will continue to be the supply of electric power.

Other Products means that we will look for opportunities to meet customer needs for products that KG&E can uniquely provide in addition to electric power.

5

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Management's Discussion cnd Analysis of Financial Condition and Results of Operations Capital Requirements and Resources $22% or 113% of book value and the common stock equity was 42%. Comparable statistics in 1985 were S(ince completion Wolf Creek) in 1985, of the Wolf Creek Company's Generating _0.9%,

construction Station $14%, 70% and 38%, respectively. The Capital ,

expenditures have fallen dramatically. As shown m Structure graph reviews the Company's capitalization for I 1981-1986 Table 1 and the Net Construction Expenditures graph, Significant financing activities during 1986 were:

1986 construction expenditures were 64% less than in I

• In April, the Company issued $50 million of 1985 and 84% less than in 1984. He Company expects 30-year,9M% first mortgage bonds to refund higher ,

annual levels for theconstruction foresee future.bnditures to be less than cost1985 securities. His included early redemption of 300,000 shares of $15.50 series preferred stock m He Company had $234 million total securities redemptions in 1986, net of $13.5 million from the March and the early retirement in May of $39.4 liquidation of a finance subsidiary. Of the total, $110.1 null n of 16M% promissory notes which were million was for mandatory retirements. The remaining ssued to Kansas Gas and Electric International

$123.9 million was to refund higher cost debt and Fmance N.V., a wholly-owned finance subsidiary.

securities. As detailed in Table 1, securities redemptions The subsidiary was hquidated in May, returning to are expected to average $75 million during 1987-1989. the Company its onginal investment of $13.5 He combination oflower construction expenditures, nulhon.

refundings of higher cost debt and securities and rate

• In June, the Company completed a $9 million increases has improved the Company's cash flow. All leveraged operating lease of two static var capital requirements in 1984 and 1985 were funded controllers. He static var system helps to maintain through external sources. In 1986, construction a constant system voltage around Wichita, the expenditures und mandatory sinking fund and debt Company's major service area, and allows the maturities were paid from internal funds. In addition, of Company to reduce fuel costs.

the $123.9 milhon of higher cost debt and securities e In June, all outstanding bank letter of credit (LOC) refunded in 19E6, $19.3 million or 16% were funded backed commercial paper was retired. He LOC internally. He Company expects internal funds to cover agreement expired in July.

all of its construction expenditures and most of its

• In June, $70 million of pollution control revenue mandatory smking fund and debt maturities during bonds were refunded.ne oceeds from $63 nh I'986, Moody's Investors Service raised its m n usa c n evepue se in rating on the Company's first mortgage bonds from Baa3 December 1985 and the hquidation of special C p 8 to Baa2. Similarly, Standard and Poor's Corporation and 'fe[]'g"70 m n n ere us t t Duff and Phelps both raised the Company s bond rating refunding.

from BBB- to BBB and 10 to 9, respectively.

The Company's long-term financial goals include net

• In November, the Company refunded its $2.42, cash from operations equal to at least 5% of total $8.66, $8.125 and 7.44% preferred stock series, of capitalization, a conunon stock market price equal to at which $13 million, $30 million, $10 million, and least book value and a common stock equity of 45% of $15 nullion, respectively, were outstanding at that total capitalization. During 1986, the Company had net time.

cash from operations of 5.3% of total capitali:ation. At Should additional funds be required, the following year end the Company's common stock market price was capital resources are available.

Table 1 1984-1989 Capital Requirements (Thousands)

Actual Projected 1984 1985 1986 1987 1988 1989 Net Construction Expenditures ........... $258,359 $115,292 $ 42,046 $ 44,720 $ 49,643 $ 69,038 Add:

Securities Redemptions . . . 2,073 55,000 234,000 43,300 50,300 130,300 Total Capital Requirements . . . . . . . . . . . $260,432 $170,292 $276,046 $ 88,020 $ 99,943 $199,338 6

l o ne Company's first mortgage bond indenture minimum tax. This will reduce the Company's ability to )

contains provisions which restrict the issuance of defer taxes with tax benefits principally accrued during the '

additional bonds. Under the earnings test, which is construction of Wolf Creek. Consequently, actuel taxes the most limiting, on December 31,1986, the paid during the remainder of the 1980's and most of the Company would have been able to issee $552 1990's wiu likely be higher than under the prior tax laws, million of bonds, assuming an interest mte of 9M% thus reducing the Company's cash flow.

and permanent approval of the September 1985 and 1986 rate increases under the Wolf Creek phase-in 1986 Rate Increase and Rate Case Appeal plan. In June 1986, tariffs were fded to put into effect the The Company's Restated Articles ofIncorporation $20 million second step of the phase-in rate plan contain no financial tests limiting the issuance of approved by the Kansas Corporation Commission (KCC) additional shares of preferred stock. in September 1985. The increase became effective in o Short-term lines of credit are available totaling $86 September 1986.

million. On December 31,1986, $7.5 million of The Wolf Creek rate order issued by the KCC in short-term borrowing were outstanding. September 1985 was appealed to the Kansas Supreme o ne Company has two long-term revolving credit Court in December 1985. In June 1986, the court found loan agreements. Le first agreement for $100 that the KCC had acted within its legal authority.

million, was renegotiated in September 1986. Under in November 1986, the Company asked the United the new agreement, the loan commitment will be States Supreme Court to review certain issues of the KCC reduced to $50 million in December 1992, with the decision and the Kansas Supreme Court opinion. On remaining loan balance due in December 1993. The February 23,1987, the court agreed to review the issues.

other agreement for $200 million, expires May 31, 1987, with the balance outstanding to be paid in four New Rate Plan Approved equal annual installments. Negotiations are underway The September 1985 Wolf Creek rate decision to extend this agreement. Outstanding balances on authorized a rate increase of $169.6 million, phased-in December 31,1986, were $100 million and $70 over three years, as follows: $135 millbn in September million, respectively. 1985, $20 million in September 19 o A $25 million bankers acceptance agreement, of million in September 1987. Aincrease foura% and $14.6 of $15.6 which $20 million was outstanding at year-end, will million, to recover deferred phase-in revenues, was expire in February 1988. ne agreement is authorized for five years beginning in September 1988.

collaterali:ed by fossil fuel inventory. The Company has taken many steps to improve its o A $20 million trade receivables purchase and sale financial position, while operating within the terms of agreement, under which $17 million had been sold at the KCC's order. He most significant step came in year end, will expire in October 1990. December 1986, when the Company requested KCC approval of a plan designed to sustain its financial The Tax Reform Act of 1986 recovery and save customers approximately $100

%e Tax Reform Act of 1986 reduces the corporate tax million over the next five years. In March 1987, the plen rate from 46% to 40% in 1987 and to 34% in 1988. His was approved by the KCC.

is expected to reduce the Company's effective tax rate on The plan allows the Company to retain the benefits of its income statement, causing reported earnings to cost savings from reduced op.erating expenses, increase. However, the act imposes a new alternative refundings of higher cost debt and securities and the Net Construction Expenditures Capital Structure

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Managenunt's Discussion and Analysis of Financial Condition and Results of Operations federal tax law change. Assuming present operating, policies are expected to be in force, will gradually economic and regulatory conditions, the plan will greatly decline. Because the Company can borrow a significant reduce the need for future rate increases. portion of the annual premiums from the cash surrender Rate changes include delaying the $14.6 million value of the policies, the cumulative cash outflow from revenue increase scheduled for September 1987 to the Company will peak at approximately $100 million January 1989. The $15.6 million revenue increase in 1993. In 1994, the Company expects to recover from scheduled for September 1988 will be delayed to the policies, net of premiums, the entire cumulative cash January 1992. Under the plan, all four increases allowed outflow through 1993. After 1994, it is expected that in the original rate order are made permanent, including the borrowings will produce annual cash inflows, net of the fourth increase which was initially approved as only premiums, during the remaining life of the policies.

a temporary five year increase. Space heating rates for Borrowings will be paid back as death benefits are residential and farm customers have been reduced from received from the policies.

7.144 to 5& per kWh during the non-summer months. Expectations are that the accounting changes and These rate changes are expected to reduce total revenues insurance earnings will cause net income to be higher by $100 million over the next five years. than it otherwise would be through 2014. These factors, Hree regulatory accounting changes were approved as combined with Company-retained cost savings and tax-part of the plan. An eight year amortization of $% law change benefits, will provide a higher rate of return million of construction-related tax benefits originally on Company rate base than would have been earned approved by the KCC in March 1986 was reconfirmed. under the KCC's September 1985 rate order.

This change became effective January 1,1986. The As part of the plan, the KCC revised its Wolf Creek second change revises the way in which non-cash phase- rate base valuation to $2,376 per kW, or the full cost of in revenues and deferred Wolf Creek carrying charges the plant less a 10% imprudency adjustment. This are recorded as income. These accruals will be recorded replaces the hypothetical $1,290 per kW coal plant on a gross, ratner than net of tax basis as they have been valuation used in its September 1985 rate order.

and will be phased-out by the end of 1991. The third Also, as part of the plan, the $125 million of Wolf change extends the depreciable life for Wolf Creek from Creek expenditures deemed by the KCC to have been 30 to 40 years. These changes, combined with other imprudently incurred will be amorti:ed over the plant's components of the plan, are expected to increase annual remaining depreciable life. This will result in a write-off earnings per share by an average of about 85&, over under Statement of Financial Accounting Standards No.

what they otherwise would have been, during the next 90 (see Note 2 of the Notes to Financial Statements).

five years. In January 1987, the KCC held hearings to consider These accounting changes improve camings in the the reasonableness of the complete retirement of Ripley early years of the plan but under traditional rate making generating station. While no order has been received, practice would cause revenue deficiencies in future the Company anticipates that the KCC will follow the years. Rese future revenue deficiencies are anticipated recommendations ofits Staff to allow the Company to to be covered with utility operating revenue and an earn a rate of return on the Wolf Creek capacity which approximate $800 million stream ofincome generated replaces the retired plant. As a result, the $14.6 million over the next 40 years by corporate-owned life rate increase scheduled for January 1989 under the plan insurance policies on certain company directors, officers is expected to be enlarged to $22.6 million.

and management employees.

Initially, annual premiums on the insurance policies FERC Rate Proceedm.gs will be $23 million and, over the 63 year period that the The Company presently has no material rate procudings pending before the Federal Energy Regulatory Commission.

"The Company has taken many Results of Operations steps to improve its financial position Sales and Customers

. . . The most significant step netails of sales and customer statistics are presented in 1/ Table 2 and the Sales graph.

came in December 1986, when the Total sales were 2% higher in 1986 than in 1985. An Company requested KCC approval increase of 18% in wholesale sales was the primary of a plan designed to sustain its reason. He availability of Wolf Creek mitted the Company to increase wholesale sales o electricity to other financial recovery and save customers utilities. He Company expects wholesale sales to remain approximately $100 million volatile in the future depending upon market conditions.

Whoksale sales accounted for 15% of total electric sales over the next five years." in 1986.

Efforts continue to be made by the Company to market available capacity. On August 1,1986, the Company 8

commenced sale of participation power to Oklahoma 1984. Residential sales declined because of milder Municipal Power Authority of 20 MW gas fired capacity. temperatures throughout the year and a reduction in sales The contract calls for a 30 MW sale in 1987 and 40 MW to a refinery in the Company's service area was a factor in thereafter through the year 2000. lower industrial sales.

Primarily due to mild temperatures during the greater Wholesale sales, which accounted for 13% of total portion of 1986, residential sales decreased 1% from electric sales in 1985, increased 6% over 1984 as a result 1985. Industrial sales declined 1% because energy used of the availability of Wolf Creek during the fourth quarter for construction of Wolf Creek is no longer accounted for allowing for increased economy sales to other utilities.

as industrial sales. In addition, due to reduced demand for chemical and cement products, some industrial customers Revenues have lowered their usage of electricity. Details of changes in revenues are shown in Table 3 and An increase in 1986 of 2% in commercial sales over the Electric Operating Revenues graph.

1985 helped to offset the decreases in residential and Total operating revenues for 1986 were $4% million industrial sales for the year. or 21% over 1985. As shown in Table 3, the rate In 1985, total sales remained virtually unchanged from increases received for Wolf Creek were the primary T ble 2 Sales and Customer Statistics Increase or (Decrease) From Prior Year 1986 1985 Sales Electric Percent Electric Percent a a- 7E m.

Sales Change Sales Change """- " "8 git Electric Sales (M kWh)

Residential . . . . . . . . . . . . . . (29,815) (1.4)% (50,907) (2.4)% 1.2 u 74 14 Commercial . . . . . . . . . . . . . 29,438 1.8 42,504 2.7 Industrial . . . . . . . . . . . . . . . (23,407) (0.9) (55,538) (2.0) . .--

Public Street & m &

Highway Lighting . . . . . . . (2,025) (3.6) (6,426) (10.2)

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Retail Sales . . . . . . . . . . . . (25,809) (0.4) (70,367) (l.1)

Wholesale Sales . . . . . . . . . . 173,905 17.7 58,017 6.3 2

Total Sales ............ 148,096 2.0 (12,350) (0.2)

Percent Percent Customers (End of Year) Customers Change Customers Change i- i~ i~ i- i~ i~

Residential . . . . . . . . . . . . . . 1,767 0.8% 3,006 1.4%

Commercial . . . . . . . . . . . . 80 0.4 353 1.8 Industrial . . . . . . . . . . . . . . (186) (4.1) (32) (0.7)

Public Street &

Highway Lighting . . . . . . . 47 6.6 25 3.6 Electric Ograting Revenues Retail Customers . . . . . . . 1,708 0.7 3,352 1.4 n~u,u ==%i Wholesale Customers ..... I 2.6 (1) (2.6)

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Total Customers . . . . . . . . 1,709 0.7 3,351 1.4 av

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Ttble 3 Operating Revenues ,,,

Revenue Increase or (Decrease) " - - ~ ~ ~ ~~ P From Prior Year "

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(Dollars in Thoustmds) D

• 1986 1985 ,,

Retnih Electric Sales . . . . . . . . . . . . . . . . . . $ (484) $(3,990) o

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Fuel . . . . . . . . . . . . . . . . . . . . . . . . . (24,727) (19,628)

Rate Increases . . . . . . . . . . . . . . . . . 109,600 25,767 Ot h e r . . . . . . . . . . . . . . . . . . . . . . . . (1,060) (5,604)

Total Retail . . . . . . . . . . . . . . . . . 83,329 (3,455)

Wholesale . . . . . . . . . . . . . . . . . . . 2,225 3,488 Total Revenue . . . . . . . . . . . . . . . $ 85,554 $ 33 9

Management's Discussion and Analysis of Financial Condition and Results of Operations reason for the increase. es in theseitems which I Total 1985 operating revenues of $411 million were now e[.

resulte nsed. Details principally from Wol of chanf> Creek's opera unchanged from the previous year. The rate increase presented in Table 4.

received in September 1985 was offset by slightly lower Fossil fuel expense decreased in 1986 from 1985 (see sales and lower fuel costs. Table 4). This is the result of the availability of Wolf Income Statement Expenses and Other Items Creek and the increased use of nuclear fueled generation.

Nuclear fuel represented 39% of fuel usage on a Bru basis Completion of Wolf Creek had a major effect on fuel, purchased power, other operation, maintenance, in 1986 compared to 15% in 1985. Coal and gas usage declined from 69% and 16%, respectively, in 1985 to depreciation, taxes and phase-in revenues and allowance for funds used during construction ( AFC), which are both non-cash adjusmients to the income statement. 53% Increasedand use 8%

of nuc in 1986' lear fuel at an During Wolf Creek s construcnon, all costs associated per million Btu contributed to the Company's average fuel with the plant were cipitalized. With commercial r million Btu decreasing 22% in 1986 com operation, the majority of costs previously capitalized are cost 193

[The average cost [r million

$2.49 in 1986 compare to $2.87 in 1985. He cost of s was B coal decreased 2% from $1.42 in 1985 to $1.39 in 1986.

x -- '/  ;* 1 Average fuel cost data and the sources of energy for the m ._ mg Company are detailed in the Average Fuel Cost Data and W^g9C  : 4'? i Sources of Energy graphs.

In addition to the impact of the completion of Wolf

- 2 Creek, maintenance expenses were up 32% in 1985 over

., / 3 ..d e 1984 as a result of the scheduled overhauls of the l - LaCygne Unit I and Jeffrey Energy Center Unit 1.

i ne Company's effective federal income tax rate and changes in income taxes for the last three years are i

detailed in Note 8 of the Notes to Financial Statements.

Phase-in revenues, which are revenues recorded for

! recovery m future years under the KCC's September 1985 phase-in rate plan, were $57.5 million for 1986 and

$16.3 million in 1985. For a further discussion of phase-s in revenues, see Note 2 of the Notes to Financial 4, Statements.

Net Income j, Net income, exchiding the accounting change for s accruing unbilkd revenues, decreased 42% in 1986 compared to 1985. The sharp decline is due to the inadequate Wolf Crcek rate increase which failed to ,

compensate for the kws of AFC when Wolf Creek trgan Skillal mlum are a mrim! hnk in teihng phry memna

""" commercial operation in September 1985. With the receipt of Wolf Creek rate increases, however, internal i

Table 4 Income Statement Statistics Increase or (Decrease) From Prior Year Average Fuel Gwt Data 1986 1985 * '

m.".".," "" ' u i Percent Percent " " - "

Amount Change Amount Change "'

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Fossil Fuel . . . . . . . . . . . . . . . . $(24,023) (23.4)% $(46,263) (31.1)% "" " - --

Nuclear Fuel . . . . . . . . . . . . . . 15,487 -

7,169 -

m ,

v m Purchased Power-Net ....... (23,268) (77.1) 11,959 65.6 Other Operation . . . . . . . . . . . 27,108 45.7 10,741 22.1 "

Maintenance . . . . . . . . . . . . . . 6,508 18.8 8,432 32.3 .. ", . ' u ..,_

Depreciation . . . . . . . . . . . . . . 28,133 63.2 12,110 37.3 l .

Taxesoperating . . . . . . . . . . . 14,445 30.2 (9,282) (16.3) ""

Phase-in Revenues ......... 41,212 -

16,306 -

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AFC - Charged to  ! '

Construction . . . . . . . . . . . . (86,955) -

(20,471) (19.2) "

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cash generation is expected to continue improving in future years. j Earnings and Dividends Earnings per average share of common stock and a common dividends paid are detailed for the 1981-1986 period in the Annual Conunon Stock Earnings Per Share i i and Cash Dividends Paid graph. -

Earnings applicable to common stock were $59 million '

for 1986, including the accounting change for accruing ,

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unbilled revenues of approximately $10.9 million,  ;

compared to $83 million for 1985. He sha

• b Q % {h-jd decline in AFC, less than requested rate relie for Wolf ;i l Creek and slight increases in average shares of common stock outstanding were principal reasons for the decline.

tt ~ 'sA's Earnings for 1984 were $106 million. In 1986, the Company's carned return on average common equity was 7.2% compared to 10.7% in 1985 and 15.4% in 1984. '

Dividends paid on common stock were $1.225 per share in 1986, a decrease of $0.84 from 1985. He '

reduced dividend reflects the 50% reduction which took place in the fourth quarter of 1985 as a result of the unfavorable September 1985 Wolf Creek rate order. Le rate increase granted was not adequate to maintain the quarterly common stock dividend at the prior level of KG6E engineers carrial mapr responsibility for installation of

. $0.59 per s are. tuo static var instauations char permit more efficiene use 1

In the fourth quarter of 1986, the Company's Board of of generating uniu locaraf auuy frorn primary easy use i Directors declared a common stock dividend of $0.34 per centes. Ncr fuel savings udt exccal $1 minion yearly.

, share. His was a $0.045 per share or a 15% increase over the dividend paid in the previous four quarters.

1 Details of the market price and book value of the disckxsure of current costs and constant purchasing power

.l Company's common stock are presented in the Market information in the notes to the financial statements is now Price and Ikuk Value of Common Stock graph. voluntary. Due to the relatively low level of inflation in recent years and the nature of the Company's business,

! Impact of Inflation and Changing Prices the Company has elected not to make these l Tn December 1986, the Financial Accounting Standards supplementary disclosures.

Aboard issued Statement of Financial Accounting Standards No. 89, Financial Reporting and Changing Prices. As a result of this statement, supplementary Sources of Energy Annual Common Stock Market Price and flook Value Earnings Per Share and of Cmninon Stock

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i STATEMENTS OF INCOME For the Yasrs Endal Desnber 3s l 1986 1985 1984 (Thousands of Dollan)

Operating Revenues (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 496,340 $ 410,786 $ 410,753 Operating Expenses Fuel and purchased power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,241 140,045 167.180 Other operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,422 59,314 48,573 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,048 34,540 26,108 Total operation and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,711 233,899 241,861 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,676 44,543 32,433 Incomes taxes (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,074 28.559 41,024 Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,176 19,246 16,063 Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,637 326,247 331,381 Opera ting Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,703 84,539 79,372 Other Income and Deductions Phase-in revenues (Notes 2 and 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,518 16,306 -

Allowance for other funds used during construction . . . . . . . . . . . . . . (680) 62,652 78,345 Miscellaneous - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,477 5,309 3,902 Income taxes (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,639) (10,252) (1,993)

Total other income and deductions . . . . . . . . . . . . . . . . . . . . . . . . . . 32,676 74,015 80,254 Income Before Inten se Charges and Cumulative Effect of a Change in Accounting Method . . . . . . . . . . . . . . . . . . . . . . . . 158,379 158,554 159,626 Interest Charges Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,202 103,433 88,237 Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.650 3,742 5,372 Allowance for borromi funds used during construction . . . . . . . . . . . 560 (46,353) (55,841)

Total interest charges - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,412 60,822 37,768 Income Before Cumulative Effect of a Change in Accou n ting Methat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,967 97,732 121,858 Cumulative Effect toJanuary 1,1986 of Accruing Unbilled Revenues (net of income taxes of $10,763) (Note 1) . . . . . . . . . 10,918 - -

Ne t I ncome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,885 97,732 121,858 Preferred Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,187 14,355 15,363 Earniny Applicable to Common Stock . . . . . . . . . . . . . . . . . . . . . . . $ 58,698 $ 83,377 $ 106,495 Average Shares of Common Stock Outstanding . . . . . . . . . . . . . . . 40,752.852 39,118,105 34,698,342 Earniny Per Share of Common Stock:

Before change in accounting methal . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.17 $ 2.13 $ 3.07 Cumulative effect .......................................... .27 - -

Total.................................................. $ 1.44 $ 2.13 $ 3.07 See notes to financial staronents.

t i

la

l BALANCE SHEETS DECEMBER 31 l 1986 1985 ASSEIS (Thousands of Dollars)

Electric Plant at original cost (Note 5)

Plant in service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,431,538 $2,407.802 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386,507 320,880 Net plant in service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,045,031 2,086,922 Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,045 9,725 Electric plant held for future use - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,445 6,414 Nuclear fuel - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,313 17,831 Total electric plant - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,068,834 2,120,892 Other Property and Investments Investment in subsidiary (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13,504 Special interest accounts - adjustable rate series (Note 5) . . . . . . . . . . . . . . . . . 15,858 20,918 Other........................................................... 556 5%

Total other property and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,414 34,977 Current Asaets Cash ........................................................... 5,514 3,350 Temporary cash investments ........................................ - 74,000 Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 20,964 19,511 Unbilled revenues (Note 1 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,543 -

Fossil fuel - at average cost (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,866 26,545 Materials and supplies - at average cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,607 25,762 PrepDyments and other current assets ................................. 10,987 2,762 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,481 151,930 Deferred Debits 39,412 8,770 Phase-in revenue net of tax (Notes 2 and 9) . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unamorti:ed debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,422 9,546 Other........................................................... 23,246 22,088 Total deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,080 40,404 Total............................................................. $2,266,809 $2,348,203 CAPITALIZATION AND LIABILITIES Capitalization (See Statements of Capitalization)

Common stock equity ............................................. $ 822,758 $ 814,295 Preferred stock - redemption not required . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,701 63,701 Preferred stock - redemption required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 76,000 Long- term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,063,464 1,047,420 Tot-1 capitali:ation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,922,923 2,001,416 Current Liabilities Short term borrowings (Note 3) ..................................... 7,500 -

Securities due within one year (Notes 5 and 6) . . . . . . . . . . . . . . . . . . . . . . . . . . 43,300 110,l00 Accounts payable ................................................. 42,482 46,371 21,4H2 27,067 Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,656 14,503 Customers' deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,316 2,831 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I30,736 200,872 Deferred Credits 163.047 110,850 Deferred income taxes (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,636 31,020 Deferred investment tax credit (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,467 4,045 Customers' advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

211,150 145,915 Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commitments and Contingencice (Notes 2 and 9)

Total............................................................. g2gtg,m $2,348,201 sane, tori m a u n nu.

I3

STATEMENTS OF CHANGES IN FINANCIAL POSITION For the Years Endal Dexmber 31 1986 1985 1984 (Thousands of Dollars)

Sources of Funds From Operations:

Net income (1986 includes $10,918 -

net change in accounting method) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,885 $ 97,732 $ 121,858 Non-cash charges (credits) to net income:

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,676 44,543 32,433 Amorti:ation of nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,906 6,118 -

Displacement power cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13,747 -

Deferred income taxes- net ............................. 77,476 38,811 42,517 Allowance for funds used during construction (AFC) . . . . . . . . . . 1,240 (109,005) (134,186)

Phase-in revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57.518) ( 16,306) -

Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,527 1,239 729 From operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I82.192 76,879 63,351 From External Sources:

First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 30,000 150,000 Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,902 149,020 98,525 Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,902 179,020 248,525 Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,814 67,192 76,701 Trustee investment fund - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,875 17,156 (8,258)

From external sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.591 263,368 316,968 Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,265 (8,425) (3,320)

Decrease in working opital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,113 - -

Total Sources of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 315,161 $ 331.822 $ 376,999 Application of Funda Gross plant additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,084 $ 201,285 $ 364,823 Less AFC charged to construction ............................. (962) 85,993 106,464 Net construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.046 115,292 258,359 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59.115 94,781 98,086 Securities redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234.000 55.000 2,073 Increase in working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -

66,749 18,481 Total Application of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3 35,16i $ 331,822 $ 376,999 Summary of Changes in Working Capital (other than securities due within one year):

Cash..................................................... $ 2,164 $ 1,995 $ (562)

Temporary cash investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,000) 35,000 39,000 Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,453 (12,511) (10,452)

Unbilled revenues ......................................... 20,541 - -

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,391 18,138 (391)

Acmunts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,889 18,942 3,965 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,412 (7,455) (8,669)

Short term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7.500) 13,000 (4,000)

Other current liabilitics ...................................... (360)

(485) (410)

Net increase (Decrease) in Working Capital . . . . . . . . . . . . . . . . . . . . . . . . $ 66,749 $ 18,481

$g40411)

Sx notes to (buncLd statsmmts.

I4

STATEMENTS OF CAPITALIZATION DECEMBER 31 1986 1985

. (Thonaands of Dollan)

Common Stock Equity (See Statements of Common Stock Equity)

Common stock, without par value, authori:ed 50,000,000 shares .......... $ 633.112 32.9% $ 628,298 31.4 %

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189,381 9.9 184,336 9.2 Other paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 - 1,661 0.1 Total Common Stock Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 822,758 42.8 814,295 40.7 Cumulative Preferred Stock (Note 4)

Redemption not required - except at the Company's option:

4H%, $100 par value; authori:ed and outstanding 82,011 shares . . . . . . . . . 8,201 8,201 Serial, $100 par value; authorized 255,000 shares:

4.28% series, outstanding 45,000 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500 4,500 4.32% series, outstanding 60,000 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 6,000 7.44% series, 150,000 shares .................................... - 15,000 Serial, without par value, $8.66 series, 300,000 shares . . . . . . . . . . . . . . . . . . - 30,000 Redemption required Serial, without par value, authori:ed 6,000.000 shares:

$2.42 series, 520,000 shares..................................... - 13,000

$8.125 series, 100,000 shares.................................... - 10,000

$8.25 series, outstanding F0,000 and 100,000 shares . . . . . . . . . . . . . . . . . 8,000 10,000

$13.25 series, outstandir1150,000 shares . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 15,000

$15.50 series, 300,000s hares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... - 30,000 Securities due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,000) (2,000)

Total Cumulative Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,701 1.9 139,701 7.0 long-Term Debt (Note 5)

First Mortgage Bonds:

Series Due 1986 1985 Series Due 1986 1985 34't 19 % - $ 7,000 8%'t 2001 $ 35,000 $ 35,000 16't 1986-% $ 22,700 25,000 7h't 2002 25,000 25,000 l

10%% 1987 30,000 30,000 6.8't 2004 14.500 14.500 14M't 1987-91 30,000 30,000 9%'t 2005 40,000 40,000 13H'A 1989 100.000 100.000 8K't 2006 25,000 25.000 4h'L 1991 7AV 7,0C0 8M'A 2007 25,000 25.000 14.05's 1991 30,000 30.000 6't 2007 10,000 10,000 144'A 1991 20AV 20,000 5%'t 2007 21.940 21.940 Sh's 1996 16A10 16,000 8%'t 2008 30.000 30,000 8WL 20LV 35,000 35,000 9%'t 2016 50.000 -

Total First Mortgage Iknds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,140 526,440 Other long-Term Delt:

Pollution Control Revenue Iknis:

5%'t wrics ............................ 2003 15.000 15,000 l

Adjtatable rate series .................... 1986 - 70.000 Aditatable rate wries .................... 2013 63.000 63,000 Adjuntable rate wries .................... 2013 87,000 87,000 A ljustable rate wries .................... 2014 98,000 98A10 AJpatable rate wries .................... 2015 79.500 79,500 Secuntics held by enatee - adjustabic rate wrics . -

(2.815) 16%% Promissory note . . . . . . . . . . . . . . . . . . . . . 1989 - 39,400 Credit agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 1986 - 28,800 Revolving bank loan . . . . . . . . . . . . . . . . . . . . . . 1992 93 100AV 100,000 Revolving bank loan . . . . . . . . . . . . . . . . . . . . . . 1988-91 70A10 50.000 ihnkers acceptance agreement . . . . . . . . . . . . . . . . . 1988 20,000 -

L Other long-term agreenwne . . . . . . . . . . . . . . . . . . . 2.147 1.245 Unanorti:cd premium and Jaa mnt - net . . . . . . . (21) (50)

Total Other long Term D +t .................................. 511,624 629,080 Sauntics due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _(jf.100) (10s,100)

Total long Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M 1,4f>4 19.) 1,047,420 52.3 Total Capitali:ation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . t i,'(2 2.w 1 100.04, $2,001,416 100.0% ====

bY D lO fl%Mik! SidloN4'hl1 15

STATEMENTS OF COMMON STOCK EQUITY Common Stock Other Paid. Retained Shares Amount In Capital Eaenings Total (Thousand< of Dollars)

Balance January 1,1984 . . . . . . . . . . . . . . . . . . . . . . 31,671,966 $484,405 $ 959 $137,810 $643,174 Net income .................................. 121,858 121,858 Cash Dividends.

Common Stock - $2.36 per share . . . . . . . . . . . . . (82,723) (82,723)

Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,363) (15,363)

Sale of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 49,255 49,255 Employee Stock Purcha e Plan, Employee Stock Ownership Plan and Dividend Reinvestment Plan . . . . . . . . . . . . . . . . . . . 1,852,468 27,446 27,446 Capital Stock Expense and Other . . . . . . . . . . . . . . . . . (130) (130)

Gain on Reacquired Preferred Stock . . . . . . . . . . . . . . . 702 702 hiance Decembec31, 1984 . . . . . . . . . . . . . . . . . . . 36,524,434 561,106 1,661 181,452 744,219 Net income .................................. 97,732 97,732 Cash Dividends:

Common Stock - $2.065 per share . . . . . . . . . . . . (80,426) (80,426)

Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,355) (14,355)

Sale of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 38,620 38,620 Employee Stock Purchase Plan, Employee Stock Ownership Plan and Dividend Reinvestment Plan . . . . . . . . . . . . . . . . . . . 1,940,376 28,572 28,572 Capital Stock Expense and Other . . . . . . . . . . . . . . . . . (67) (67)

Holance December 31, 198 5 . . . . . . . . . . . . . . . . . . . 40,464,810 628,298 1,661 184,336 814,295 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,885 67,885 Cash Dividenda Common Stock - $1.225 per share . . . . . . . . . . . . (49,928) (49,928)

Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,187) (9,187)

Employee Stock Purchase Plan, Employee Stock Ownership Plan and Dividend Reinvestment Plan . . . . . . . . . . . . . . . . . . . 334,889 4,814 4,814 Capital Stock Expense and Other . . . . . . . . . . . . . . . . . (66) (66) laws on Reacquired Preferred Stock . . . . . . . . . . . . . . . (1,3%) (3,659) (5,055) blance December 31,1986 ................... 40,799fi99 $611,112 $ 265 $189,381 $822,758 sa notes to finandal staronents.

NOTES TO FINANCIAL STATEMEN13 9.18'L in 1986,9.38'A in 1985 and 9.72'h in 1984.

Maintenance and repairs of property, and replacements and

1. Summary of Significane Accounting Policle* renewals ofitems determined to be less than units o(property, are System of Accounts -%e Company is subject to the juris- chargal to operating experaes. %e amt of units of property diction of the State Corporation Commission of the State of replaced or renewed, pha removal onts, leu salvage, is charged to Karmas (KCC) and the Federal Energy Regulan>ry Camur.ission accumulatal depreciation, and the cost of related replacements (IIRC) and maintains its accounts in accordance with the uni. and renewals is addal to electric plant. Iktterments are charged to form system of accounts prescrilvd by these regulatory commis- eintric plant.

skms. As a regulatal utility, the accounting pinciples applied by Revenues - Prior to January 1,1986, operating revenues the Company dif(cr in certain respects from those applini by included amounts acnndly billni for services rendered. To rrovide non regulated btainess, a better matching of the Company's revenues and expenses, effec.

Electric Plant - %e amt o(plant includes contractal work, tive January 1,1986, the Company adoptal a change in account.

direct lalmr and materials, alkicable enginnrmg. superviskm, Ing methal to provide for accrual of estimatal unbilled revenues.

general arwi administrative conts, and alkwoce for funds taal Unbillnl revenues result from services deltvned since the perkwl during constructhm (Al'C). AFC, a non< ash item. is definnt in covered by the latest billings to ctatomers. %e cumulative c(fect the applicable regulatory system o(accounts as the net omt during of this accounting ( hang as of January 1,1986, $21.7 millhm. ns the perksl of umstruction of borrowed furxls med for construe. recordnl in Decemtwr 1986 and increasal 1986 net income tion purpones, inchwhng nuclear fuci, arwl a reasonable rate on approximately $ 10.9 million (net of relatal ino>me taxes of $ 10.8 other funds when so usal. He AIC rate (net o(income taxes) was million).

13

Had this new accounting method been in effect during 1984 and Approximately 50% of Wolf Creek's capacity deemed to be 1985, net income wouki not have been materially diff-rent than excess capacity by the KCC will be phased into rate base over that shown in the financial statements. five years beginning in 1987, with the remaining portion of the Fuel Costs -He cost of nuclear fuelin process of refinement, W IfCreek investment not in rate base accruing a rate of return conversion, enrichment, and fabrication is recorded as an asset at f approximately 5% %e Company will be permitted to re-original cost and is amorti:ed to expense based upon the quantity c ver costs deemed imprudent over the life of Wolf Creek.

of heat produced for the generation of electricity. He accumu, a ne depreciation rate for Wolf Creek was changed from lated amorti:ation of nuclear fuel was $25 million at December 31, approximately 3.4% to 2.6% as a result of a change in its 1986 and $6.1 million at December 31,1985. depreciable life from 30 to 40 years.

He Company's rate scinlules include a fuel adjustment clause

• The order reaffirmed the March 1986 order permitting the which permits current recoveries of fuel costs. eight-year amortization of approximately $96 million deferred

, income taxes included in the Company's utility plant in service.

Depreciation - For financial reporting purposes, the Com' Such an am< .unt represents the tax effects relating to the allow-pany uses the straight-line method to depreciate the original cost of ance for borrowed funds used during construction capitali:ed prope rty over its estimated remaining service life. The provision for Wolf Creek.

for depreciation stated as a percent of original cost of depreciable

• The Company will accrue phase-in revenues of $14.6 million property was 3.4% for 1986,1985 and 1984.

annually, plus a rate of return on total phase-in revenues Income Taxes - In the calculation ofincome taxes, the Com- accrued, until the third rate increase of $14.6 million is imple-pany (i) used liberali:al depreciation for additions for 1973 mented in 1989. %e Company will accrue a rate of return on through 1980 and ACRS beginning in 1981, and (ii) utili:es other accumulated phase-in revenues for years 1989 through 1991.

tax !=nefits as permitted by the Internal Revenue Code, consistinM He gross method will be used to record the income tax effects principally of differences in straight-line depreciation and the of these accruals.

deduction currently for interest and taxes capitalized for book . BeginningJanuary 1,1992, the accumulated phase-in revenues purposes. Deferral taxes are provided for such items as approved and accrued rates of return on excess capacity will be amorti:ed by the arpropriate regulatory commission and as required by the for recovery over the remaining life of Wolf Creek.

Internal Revenue Cale. In connection with an order from the ne KCC is permitting the Company to combine an approxi.

KCC, AFC is recorded in Electric Plant on a net basis with an mate $800 million strmm ofincome generatal over the next 40 amount equivalent to the income tax effect on the borrowed funds years by corporate-owTal life insurance policies on certain Com-portion of the AFC durged to deferred taxes under operating pany directors, officers and management employees with utility expenses and credited to AFC. operating revenue to cover the revenue requirements as a result of

%e Compmy defers investment tax cralits when utili:al and the precenling regulatory accounting changes.

amorti:es such credits over the remaining life of the applicable Statement of Financial Accounting Standants Ikard p"'p#"Y' No. 90 (SFAS 90)-In December 1986, the Financial Account.

Ileclassification - Certain amounts in prior years have been ing Standards Ibard issued SFAS 90, Regulated Enterprises -

reclassified to conform with cLtssifications used in the current year Accounting for Abandonments and Disallowances of Plant Costs presentation. which amends, in 1988, the presently prescrilwl accounting standards for these two types ofevents that have occurred primar-

2. llegulatory Matter' ily in the electric utility inJustry. Among the provisions of SFAS Itat 2 llecognition of Wolf Creek - In connection with the 90 is a requirement that any disallowance of the cost of a recently start of commercial ostration of Wolf Creek Generating Station completed plant be recogni:nl as a loss (cost definal to include a (Wolf Cnrk)in 1985, the KCC grantal the Company, effective return on capital). Prewnt accounting standard 3 do not require the October 3,1985, a $ 169.6 million interim rate inacase subject to recognition of a loss if the total cost of the pLmt (exchisive of a refund or nJjustment. In determining the amount of the rate return on capital after construction) would le recovered in the inacase, the KCC tentatively disallown! a rate of return on a raremaking pnvess.

significant pittion of the Company's investment in Wolf Creek, in its March 1987 rate order (application for the order was and disallown! nrovery of approsimately $ 125 million it (krmal filed by the Company in December 1986), the KCC reaffirmed imprudent. %c rate increase of $ 169.6 million was to be phasab its disallowance of a rate of return on approsimately $125 in over three years in the amounts of $ 135, $20 and $ 14.6 million million of the Company's investment in WolfCreek. As a result in years one through three resswrively. Revenues nrorded but of this indirect disalhiwance, the Company will be required not currently billnl under the phaein plan, plus a rate of return under SFAS 90 to recogni:e a loss on a portion ofits investment on suih amounts, were to lv collaint in years four through eight in Wolf Creek. nc Company exiwes to adopt SFAS 90 in 1988 via an askhtional rate trx reaw in ihme years. and it has the option of reilecting the approximate $ 51 million in Manh 1987, the KCC mahfini its interim rate order for loss (after tax of $ 13 milhon) by either restating its 1986 finan-Wolf Cnrk. Significant nuxhfications of the interim rate onier cul statements or by recordmg it as a cumulative effnt of a afinting the rate reuignition of Wolf Cnrk incluJnt: s hange in accounting principle in its 1988 financial statements.

o %e $ 135 and $20 nullion rate inacases were made irr manent. See Note 9 for other Financial Accountmg Standards IbarJ uc $ 14 6 nulhon rate int rease w a* delayni tojanuary l.1989, Matters.

and wdl ate lv a n tmanent increaw. A fourth permanent rate int reaw o($ li.6 milhon w ill iwome rffn tive January 1,1992. 3. Mmn. Tem NmMnc o %e Compmy w til le irrmntnl to earn a rate of return on its At Dnemier ll,1986 and 1985, the Company had bank enure investment in Wolf Cnrk other than the apprmimately unht arrangements in the anmont of $86 nullam and $91 million.

$125 nutkon of umes whkh the KCC found to it impnutent. nspa tively. He Company uws thew sourus to meet shott term 17

cash requirements. He maximum amounts outstanding during Weightet!

1986 and 1985 were $17.5 million on hiarch 17,1986 and $69 letters of Credit Average Net million on April 9,1985. He weighted average interest rate, Description Expiration Dates Interest Itate excluding fees, was 8.1% for 1986 and 8.8% for 1985. 1986 1985

4. Cumulative Preferred Stock Series due 2013 He mandatory sinking (und or redemption obligations at $63 million December 17,1990 4.6% 7.6%

December 31,1986 for the various Series are: Series due 2013

$87 million December 2,1989-91 5.0't 5.8'A Annual Series due 2014 Peru.x! Number $98 million November 3,1990 6.2% 6.2's Series Commencing Completion of Shares Series due 2015

$8.25 July 1,1987 - 50,000 $79.5 million August 15,1993 6.I'L 6.2%

July 1,1988 - 15,000 The Company has two revolving bank kuns. One kran, due July 1,1989 - 15,000 1993, is comprised of a revolving credit loan up to $ 100 million

$13.25 October 1,1988 October 1,1992 30,000 until December 19,1992, followed by a $50 million k>an. A wcond k>an, due 1991, enables the Company to borrow up to ne $ 13.25 Series Serial Preferred Stock may be redeemed on

$200 miHion on a remiving credit basis until May 31,1987, with and after October 1,1987 at $100 plus unpaid accumulated the remaining balance to be paid in four equal annual installments.

dividends, if any. He dividend rate will be $13.25 through Ibth k>ans may be repaid enor to their due dates without penalty.

September 30,1987. From October 1,1987 through September he weighted average interest rate, tncluding fees, was 8.0't for 30,1992, the rate willir determined by a formula which is based an average prime interest rate in the year ending September 30, 9.3% f r 1985 19(a p , ,

%e $8.25 Series preferred stock may not be redeemed prior to 1988, en bles the Company to borrow up to $25 million by July 1,1989, through the use, directly or indirectly, of the pro- '"U ,ralmng as fel fuel inventories at rates based upon the banks discount and acceptance charge. He weighted average ceeds of indebtedness or of the issuance o(stock of equal or prior est rate, including fees, was 7.7% for 1986 and 9.1% for rank, at an effective cost to the Company of less than 8.25% I"y5-(except for sinking fund purposes).

%e call prices at December 31,1986, on the 4WL,4.28,5, 3e embetkled cost of long-term Jebt at Decemtwr 31,1986, 4.32 L and $8.25 series preferred stocks are $ 110, $ 101, $ 101.64 1985 and 1984 was 8.88%,9.07% and 9.80%, respectively.

l and $101.83, respectively. He embetkks! cost of preferred stock 6. Finance Sulwhliary l at December 31,1986,1985 and 1984 was 8.38%,10.06'1 and Kansas Gas and Ekctric Intenutional Finance N.V., a wholly.

9.86%, respectively, owned off-shore finance subsidiary formed in 1982 to ivrmit the

5. teng Term Debt Gmrvany to secure Eunxlollar funds, was liquidated in hiay 1986' l Itequired redemptions and sinking fund payments for 1987 through 1991 for long <erm debt are $ 38.3, $45.8, $ 125.8, $25.8 7. Iterirement Plan and $82.8 million, respectively. ne redemption requirements for He Company has a noncontributory, defm~ ed benefit pension 1989 through 1991 wouki be increasett by $28, $192 and $28 plan for all employees. Plan benefits a e generally based on years of million, resswtively, in the event that the irrevocable letter of servicc and the empkwee's highest aggregate compensation in five crnht agreements with resirct to the $63, $87, and $98 million consecutive years of the final ten years of service. Due to the adjustable rate series are not extended or other arrangements for present fundu>g status of the Nan, the Comomy's current funding c llateral are not made. pilicy is to contribute the minimum amount requirn! by federal First mortgage lvnds may be issued in atklinonal amounts. law.

hmited by proivrty, earnings and other provisions of the Com- During 1986, the Company adopted Statement of Financial pany's Mortgage dates! April 1,1940, as supplemental (hlott* Accounting Standards No. 87, Employen' Atumnring for Pouior.s gage). Electric plant is subjet t to the lien of the Mortgage except for (SFAS 87), which changed the Compmy's method used to transp>rtation equipment- determine its net periothe remion cost. Annual grnsion cost for

%e 6.8% series, due 2004, and the 5%% and 6% series, due the years 1986,1985, and 1984 was $ 2.1, $ 3.7, and $ 3.1 million, 2007, are pin!gni as collateral for Pollution Control llevenue respx tively. %e darcase in 1986 pension cost from 1985 costs Ibexts issual by Kansts municipalities. resulted primarily (nwn thanges in the Compmy's method of

%c four adj mtable rate series pollution c ontrol revenue lond5 determining grnsion expense due to its adoption o(SFAS 87.

are 5nurnl by irrevot able letters of credit. Interest rates for thew Net priishe grnsion une for 1986 includeil the following bonds are variable and are determined on the basis of prevaihnW uimpments (in nulhom):

mad et rates for debt imtruments of hke tenor and ytuhty %e Con pmy is requirn! to nuintain spetial interest aaounts to Ir 1986 uvd for debt servite for the $87 and $98 milhon adjmtable rate 8' TVI'e unt - trnefas camnl dunng lrrawl . . . . . . . . $ 3D serici. Sut h acuiunts nuy Ir uwd for interest payments, but mmt Intenst u mt on erojn en! trnefit obhgation . . . . . . . . . 4.9 be sulwnpently replenishal to the enquirni nuount Ivalance of At tual return on awets . ......... .. ... . . ( 18.1 )

$15.7 nuthon. %c (oikming informanon is apphcable to thew Net amortizanon and deferral . . . . . . . . ..... ... 12.3 iwucs Net p rushe remion uwt ....... . .

. . . . . $ 2j IN

i The following table sets forth the Plan's funded status at income taxes as recorded in the Statements ofIncome are:

November 30,1986 and a reconciliation of such status to the 1986 1985 1984 December 31,1986 financial statements (in millions): g.g g Actuarial present value at November 30,1986: Opera cing expenses, Vested benefit obligation . . . . . . . . . . . . . . . . . . . . . . $ 48.0 Currently payable-Federal . . . . . . . . . . . . . . . $ -

$- $(1,749)

Accumulated benefit obligation . . . . . . . . . . . . . . . . . $ 53.7 State . . . . . . . . . . . . . . . . . - - 2%

Deferred - Federal . . . . . . 33,232 25,897 34,937 Plan assets at November 30,1986 . . . . . . . . . . . . . . . . $ 84.7 3 5,226 3,714 5,498 Projected benefit obligation at November 30,1986 . . . (72.2)

Investmbrate . . . . . . . . .

Plan assets in excess of projected benefit credit - net . . . . . . . . . . . (1,384) (1,052) 2,082 obligation at November 30,1986 ............... 12.5 Total . . . . . . . . . . . . . . 37,074 28,559 41,024 Unrecogni:ed net gain from past experience different from that assumed . . . . . . . . . . . . . . . . . . . (11.3) Other income and deductions:

Prior service cost not yet recogni:ed in net Currently payable -

periodic pension cost . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Federal ............... - - 1,722 Unrecogni:cd net asset at January 1,1986 being State ................. - -

271 recogni:ed over 18 years . . . . . . . . . . . . . . . . . . . . . . Deferred - Federal . . . . . . 25,608 8,858 -

(4.7)

Contribution accrued for December 1986 . . . . . . . . . . (.2) - State . . . . . . . . . 4,031 1,394 -

Total . . . . . . . . . . . . . . 29,639 10,252 1,993 Pension liability recogni:cd in the balance shcet at December 31, 1986 . . . . . . . . . . . . . . . . . . . . . . . $ ( 1.4) Change in accounting method -

deferred (see Note 1) . . . . . . 10,763 - -

%e weighted-average discount rate and rate of increase in inceme tax future compensation levels used m determining the actuarial expense - net . . . $77,476 $38,811 $43,017 present value of the projected benefit obligation were 7.5% and 6.0%, respectively.ne assumed long-term rate ofretum on assets Deferred income taxes was 8%. Plan assets consist principally ofcommon stock of public consist of:

4 companies and U.S. government securities. Accelerated depreciation . . . $54,780 $43,257 $11,006

%e actuarial present value at November 30,1985 of vested Phase-in revenues . . . . . . . . . 26,876 7,536 -

benefit obligation, accumulated benefit obligation and plan assets Unbilled revenues ........ 10,199 - -

were $43.3, $47.5 and 69.1 million, respectively. AFC - borrown! . . . . . . . . (278) 23,012 27,722 Overheads capitali:cd - net 433 4,118 4,786

8. Inconw Taxes

, Net operating tax loss . . . . . . (13,160) (33,705) -

%e effective Faleral income tax rates differ from the amounts Test energy for computal by applying the Federal statutory rates to income lvfore Wolf Creek - net . . . . . . - (4,144) -

Federal income taxes. %e reasons, with related percentage effects. Other - net . . . . . . . . . . . . . 10 (211) (3,079)

Total . . . . . . . . . . . . . . . $78,860 $39,863 $40,435

, Statutory Federal income tax rate . . . . . . 46 % 46 % 46% At December 31,1986 the company has unused general busi.

ness credits of approximately $111 million available for carry-AJJ (Daluct) income tax effects of:

Allowances for other ftmds used (mward to future years which ifnot utili:ed, will expire in the yeam during construction . . . . . . . . . . . . . 1993 through 2001. As a result of the Tax Reform Act of 1986, (21) (23) these unused credits will be reduced to approximately $92 million Depreciation (principally AFC 6 in 1987; any remaining unused credits thereafter will be reduced recorded net of tax) . . . . . . . . . . . . . -

1 by an additional 17.5% of their original amount. Additionally, the Benefit from state income taxn ..... (3) (2) (2)

Amorti:ation of Company has a tax has carryforward of amroximately $107 ,

million, whlch if not used, will expire in the years 2000 and 2001.

investment tax cralit . . . . . . . . . . . . (1) (1) (1)

This has carryforward has been recogni:cd for financial reporting

,' Other items-net (no one item nukes up more than 2%) . . . . . . . . 12) 3 2 purpmes as a reduction of deferred income taxes.

He Company was not allowed by the KCC to record deferred i Effective Federal income tax rate ...... 46% 25 % 23% income taxes on certain items (primarily payroll and property taxes, pensions, and removal costs) prior to May 1983. %e cumulative net amount of such timing differences for which

. deferred income taxes have not been providal is approximately I $11 and $12 million as of December 31,1986 and 1985, respec*ively.

i 19

--- - - --- , . - _ - . ~ . _ _ - _ _ . _ _ . - . , .--

9. Comn. aments and Contingencies might have on the Company's financial pmition or results of Spent Nuclear Fuel Disposal- Under the Nuclear Waste operations.

Policy Act of 1982, the U.S. Department of Energy (DOE) is 10. Joint Ownership of Utility Plants responsible for the ulti.. ate storage and disposal of spent nuclear c,,r,,y,. ownership at otremher 31.1986 fuel removed from nunear reactors. Under a contract with the DOE for disposal of .,cnt nuclear fuel, the Company pays a serEice Ie in Accumulates! Per.

quarterly fee to DOE of I mill per kilowatthour on net nuclear n,,,, u;ii;on, o,p,,ci,en,o uw ,,n, generation. Such fees were $3.3 million in 1986 and $ 1.8 milhon la Cygne June in 1985.

1. 1(a) ..... 1973 $ 125 $56 343 50 Decornmissioning - %e Company's share of Wolf Creek 12 Cygne May decommissioning costs are estimated to be approximately $66 #2(a) ..... 1977 116 41 315 50 million in current year dollars. Electric rates chargni to customers Jeffrey July provide for recovery of decommissioning costs over the life of #1(b)..... 1978 62 16 132 20 Wolf Creek. Amounts so collected from customers are deposited Jeffrey May in an external trust fund and will be used solely for the physical #2(b)..... 1980 61 13 134 20 decommissioning of the plant. At December 31,1986, $0.8 Jeffrey May million was on denwit in the decommissioning fund. #3(b) . . . . . 1983 87 11 137 20 Nuclear Insurance-%e Price-Anbrson Act currently lim- WolfCreek Sept.

Its the public liability ofan ovmer of a nuclear power plant to $700 #1(c) ..... 1985 1,383 63 530 47 million for a single nuck ar incident.%e WolfCreek Owners have (a) Jointly owned with Kansas City Power & Light Company.

purchasal the maximum available private insurance of $ 160 mil- (b) Jointly owned with %e Kansas Power and Light rompany, lion and the balance is provided by indemnity agreements with the Central Telephone and Utilities Corp. and Miuti Public Nuclear Regulatory Commission. %e Wolf Creek Owners are Service G3mpany.

jointly and severally subject to a retrospective assessment of up to (c) jointly owned with Kansas City Power & Light Company

$ 5 million ($2.35 million, Company's share) ln the event there is a and Kansas Ekctric Power Cooperative, Inc.

nuclear incident involving any of the nation's licensed reactors. Amounts and capacity represent the Company's shart t.nd have Here is a limitation of $10 million ($4.7 million, Company's been financed by the Company. %e Company's share of operat.

share) in retrospective assessment in any one year. He Act is ing expenses of plants in service are included in the operating scheduled to expire in 1987 and Congress is considering several expenses on the Statements of Income, modifications to the Act. %e Company is unable to predict the effect such actions may have on the Company's potentialliability. I1. Quarterly Financial Statistics (Unaudited)

%e Comguny carries property insurance in amounts of approx. @wnds, ex@ lvr kre cmmts) imately $ 1.2 billion with a combination of the " nuclear insurance 1986 pmts" and Nuclear Electric Insurance Limited (dEIL), which 4th 3ni 2nd 1st provides insurance coverage against property damage to nuclear generating facilities. He Company also carries additional insur*

Qtr. Q$r. Qtr. Qr.

Operating ance with NEIL to cover the costs of replacement power during Revenues . . . . . $114,269 $156,736 $116,985 $108,350 prolonged outage of a nuclear unit in the event of a claim by any Operating memlvt of NEIL under the above coverages, the Company may be Income . . . . . . . 15,702 45,834 33,603 30,564 subject to an assessment if huses exceed premiums, reserves and Net income . . . . . (2,221) 29,764 16,658 12,766 other NEIL resources. As of December 31,1986, the maximum Earnings av,essment to the Company is approximately $6 million. Applicable to I

Director's and Officer's Insurance - He Company carries Common director's and offleet's liability insurance with a mutualinsurance Stock . . . . . . . . (3,610) 27,452 14,301 9,634 comguny, he Company is subject to a retnwpective assessme nt Average Shares of up to $15 million in the event there are kwses which exceed Outstanding . . . 40,800 40,744 40,742 40,735 premiums and reserves of the insurer. Earnings Per Financial Accounting Standards lloard Matters - In Share . . . . . . . . $ (0.09) $ 0.67 $ 0.35 $ 0.24 Decemtvr 1985, the Financial Accounting Standards ibard in the fourth quarter of 1986, the Company changnl its method (FASil) issued an Expwure Draft pronning certain amendments of accounting to pr wide for accrual of estimatal unbilled to Statement of Financial Accounting Standards No. 71, Account- revenues. Accordingly, the results for prior 1986 quarters have ing for the Effects of Certain Types of Regulation. While the lven restated to reflect the accounting change as of January 1, FASil adoptal, with tertain mothfications, the provisions of the 1986. %e effect of the accounting change was to increase Expmure Draft pertaining to plant alundonments and disallow- (decrease) 1986 first, second and third quarta net income lvfore ances (see Note 2 ), it did not adopt any amendmenta gwrtaining to cumulative effect of the accounting change by $(l.5), $1.4 and rate phase-in plans, and has schaluted the issuance of a new $2.3 million, respectively, or $(0.03), $0.03 and $0.05 per share, expwure draft for rate phase-in plans for the spring of 1987. %e respectively. %e 1986 amounts exclude the net cumulative effect Comsuny cannot presently prnlict whether an amendment to to January 1,1986 of the change in accounting method, approxi.

present accounting stantbrds for rate rhase-in ptms will ultimately mately $10.9 million, of net income or $0.27 per share (see tv adorent, or if adopted, what effect, if any, such amendment Note 1).

30

1985 Had the method of accounting for unbilled revenues adopted in 4th 3rd 2nd tot 1986 been in effect during 1985, camings per share by quarter Qrr. Qtr. Qrr. Q$r. would not have been materially different than shown above.

Operating Market Prices and Dividend Rates of Common Stoclu Revenues . . . . . $110,705 $115,608 $89,810 $94,663 Operating hw Market Price Dividends income . . . . . . . 27,252 26,% 7 13,499 17,221 Common.NYSE 1986 1985 1986 1985 Net income . . . . . 8,198 32,064 27,389 30,081 First Quarter $18% $14 $19% $16% $.295 $.59 Earnings Second Quarter 19 ISM 19% 16M .295 .59 Applicable to Hird Quarter 20M 17W 19H 10W .295 .59 Common Fourth Qparter 23H 18H 14 % 9% .34 .295 Stock ........ 4,681 28,547 23,872 26,277 ne Company had 38,574 common stockholders as of Average Shares December 31,1986.

Outstanding . . . 40,450 39,797 39,331 36,898 Eamings Per Share ........ $ 0.12 $ 0.72 $ 0.61 $ 0.71 Auditors' Opinion To the Stockholders and the ikurd of Directors of Kansas Gas and Electric Compcny:

We have examined the balance sheets and statements of capitali:ation of Kansas Gas and Elatric Company as of December 31,1986 and 1985 and the relatal statements o(income, o(common stock equity, and ofchanges in Anancial puttion for endi of the three years in the perkd endal December 31,1986. Our examinations were made in accordance with generally accepted anliting standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considned necessary in the circumstances.

In our opinion, such 6nancial statements present fairly the financial puttion of the company at December 31,1986 and 1985 and the results of its operations and changes in its Gnancial pultion for each of the three years in the perkxl ended December 31,1986, in conformity with generally accepted accounting principles consistently applied during the perkx1, except for the diange, with which we c mcur, in 1986 in the method of remgnizing unbilled revenues as described in Note I to the Anancial statements.

Kansas City, Missouri March 1I,1987 Deloitte Hakins & Sells Management Statement of Responsibility for Financial Statements ne nunagement o( Kansas Gas and Electric Company is resporuible for the Anancial statemmts, notes thereto, and other information in this reput. ne aaompanying Anancial statements have been preparn! by management in accordance with generally accepted accounting prinetples umsistently applied. %e accounting system is in accordance with the Uniform System of Accounts prescribal by the Faleral Eregy Regulatory Commissk n and the State Corporatkm Commission of the State of Kansas.

He integrity of the accounting records is uphek! by a comprehensive system o(internal acmunting controls, monitored on a regular basis by the intenul anlit staff o( the Carpany %e system of internal control is complemented by a set of awounting policies and procalutes whid. provile the necessary guidance needed to institute effective internal control.

%e lkurd o(Directors nuintains its oversight resp >ruibility through an Audit Committee, consisting of three outside directors. %e Committee meets with Management, the intanal Auditors, and the Independent Auditors in connection with its review of matters relating to the Company's 6nancial reporting; the Company's Internal Audit Program; the Company's system o(internal accounting controls; and services of the Independent Anhtors. %e Committee meets with the amlitors without management present in order to assure in lependent trmtment of matters bmught to its attention. Le Committee also remmmends to the Dirntors the selectkm of Independent Auditors.

Wichito, Kansas James T. Clark l

March 11,1987 Vice President - Acmunting 21

COMPARATIVE ELECTRIC STATEMEN'IS -

Annual Compoural Growth Rates 5 10 1986 1985 1984 Year Year Electric Operating Revenues (Thmimb)

Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 181.605 $ 147.183 $ 147.547 13.0 14.4 Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125.979 100,651  %,304 11.5 13.4 Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,699 129,313 131,080 7.5 13.0 Public street and highway lighting . . . . . . . . . . . . . . . . . . . . s.185 4,241 4,305 13.7 14.4 Retail rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464,668 381,388 379.236 10.7 13.7 Wholesale rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.7_.56 23,873 25,294 (5.0) 7.0 Total sales of electricity . . . . . . . . . . . . . . . . . . . . . . . . . . 489.424 405,261 404,530 9.4 13.2 Other.......................................... 6,916 5,525 6,223 44.4 22.9 Total electric operating revenues . . . . . . . . . . . . . . . . . . . {49tj,143 $ 410,786 $ 410,753 9.7 13.3 Sales in Kilowatthours (humb)

Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,014.158 2,063,973 2,114,880 .8 2.0 Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,658.665 1,629,227 1.586,723 2.4 2.8 Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.671,181 2,694,588 2.750,126 (1.3) 1.3 Public street and highway lighting . . . . . . . . . . . . . . . . . . . . 54,792 56,817 63,243 (3.3) (1.0)

Retail rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,418,796 6,444,605 6,514.972 .2 1.9 Wholesale rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _I,157,888 983,983 925,966 .7 3.5 Total kilowatthours soki . . . . . . . . . . . . . . . . . . . . . . . . . 7,576,684 7,428,588 _ 7,440,938 .3 2.1 Customers at Eeul of Year Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222.281 220,516 217.510 1.2 1.7 Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,28t> 20.206 19,853 1.1 1.1 Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.156 4.542 4,574 1.0 3.2 Public street and highway lighting . . . . . . . . . . . . . . . . . . . . 762 715 690 5.6 7.4 Retail rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,687 245,979 242,627 1.2 1.7 Wholesale rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __W 38 39 (18.0) (8.9)

Total c!cctric ctatomers . . . . . . . . . . . . . . . . . . . . . . . . . . 247,726 246,017 _ 242/(6 1.2 1.7 Renklential Average kilowatthours per ctatomer . . . . . . . . . . . . . . . . . . 9,202 9.435 9.812 (.5) .I Average revenue per customer . . . . . . . . . . . . . . . . . . . . . . . $821.s i $672.85 $684.54 11.6 12.4 Average revenue per kilowatthour . . . . . . . . . . . . . . . . . . . . 8.9 M 7.13t 6.98& 12.1 12.2 Kilowattimurs Generatest and l'urchanni (%naan.6)

Generated (nct afecr stasm wc) ...................... 7,879.831 6.506,528 7.194,861 1.0 3.0 Pu r c haml . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ is0 dos 1,590,515 822,000 (8.2) (8.0)

Total available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,210,2 ss 8,097,0 0 8,016,861 .5 2.1 Comguny use, line hus. etc. . . . . . . . . . . . . . . . . . . . . . . . . . _ 6s4.974 668,455 575,923 3.2 2.4 Total kilowatthours soki . . . . . . . . . . . . . . . . . . . . . . . . . 7,s76,6sj 7,428,588 _7,440,918 .3 2.1 Aversee HTU per Net Kilmethour Generatest . . . . . . I i,00 : 11.184 11.161 (.3) .2 Aversee Fuel Cmt per Million HTU . . . . . . . . . . . . . . . . . $ 1.20 $1.54 $1.86 (4.7) 6.0 l'ower Resources (Maauntu)

Available capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4is 2.097 2.099 3.7 3.5 System peak rengunnibility . . . . . . . . . . . . . . . . . . . . . . . . . . 1,612 1,611 ( 7) 1.6

_ _ .I .t.2 7 Reacrve caivcity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . sos 485 466 18.6 9.3 Uillity 1%nt at Original Coat (%naamb) licginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,4 s 7,77 s $2.282/>% $1,922.942 14.2 15.9 Capital expenihturca . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.084 201.285 364.82) (26.2) (9.8)

Retirements ................................... 9,02l 26,206 5,069 2.1 11.4 Etsl o( yea r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.. iso.s to 2.457,775 2,282/>96 11.5 13.9 Accumulatal depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 421,002 116,M81 291/d1 l ).7 12.9 Net utthty plant .................................. $ 1,te.H l I $1,2g $1,989,011 11.1 14.1 Employece at year cest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4 t o 2.513 2,277 7.0 6.2 22

! STOCKHOLDERINFORMATION i i Annual Meeting Registrars

! %c annual stockholders' meeting will be held May 27, Preferred Stock: l j 1987, at the General Office of the Compny,201 N. Bank IV, Wichita  :

1 Market, Wichita. Proxies for this meeting will be solicited Common Stock: . L l by management. A proxy statement will be mailed to Bank IV, Wichita, and sterkholders about April 17,1987. First National Bank of Chicago 1986 Annual Report Bonds: Trustee, Registrar and Paying Agent i ed primarily for the information Morgan Guaramy Tmst Company of New York This reivr+ is 30 West Broadway l of companfe, todlNers and is not issued in connection s

i with the sa or offer for sale of, or solicitation of an New York, New York 10015 ,

offer to buy any securities of the company. Stock Exchange Listing General Offices %e comimny's common stock is listal on the New .

York and Pacific Stock Exchanges.  :

201 North Market Stock Symbol: KGE P.O. Ikm 208 Wichita, Kansas 67201 Stockholder Records and l Phone:(316) 2641141 Dividend Reinvestment Transfer Agents KG&E Stockholder Records Department j P.O. Box 208 i Preferred Stock: Wichita, Kansas 67201 First National ibnk in Wichita Phone: Kansas -(call collect)

Stock Transfer Ikpartment (316)261-6640 .

i P.O. Ikm i Outside Kansas t

Wichita, Kansas 67201 160-527 2495, Ext. 6640 Common Stock:

First National Bank in Wichita Additional Information Stock Transfer Department The company's form 10-K is filed with the Securities I P.O. Ikw I and Exchange Commission and is available upon request  !

Wichita, Kansas 67201 from that agency or from the company.

First National ibnk of Chicago For a copy of KG&E's " Financial and Statistical  ;

J Trmt Department Report 19761986" or other information, contact:

1 First National Pla:a KG&E Investor Relations Department I' Chicago, Illinois 60670 P.O. Ibx 208 ,

! Wichita. Kansas 67201 I

Phone: Kansas (callcollect)  !

(316)261 6929 Outside Kansas 1-800-527 2495, Ext. 6929 i

l Service Area Map Mdi' levenil Gennatins Station.

Cittes uith Cmnewt Servk en L'I'* 'Y ""'I I"'I  !

I O'fk ro

• l 5 o"r'lon Eva'= s' ram i:la trk I Traturek m Lince - Stathe. ith MW, l

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thent 6nterumnnthwu are lhwl maintaitus] with 10 ottw, 3 Murray Gill Stram i kstrw l unhten arsi the remigwny t. Stathm,124 MW, 4

a nwmtre of' the Southwr.t Natur41 Ua=

I l\mcr IWI aiwi the Mokan E l A Cee Stram Fin trk-IWI. l'owre to regularly 5'ath m. fM MW'. Ca ul l  ; transmitent to newl in wn l E Wolf Crnli OrfwratuW g

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Kansas Gas and Electric Company Key Nwnlu no P.O. Ilox 208 Bulk Rate Wichita, Kansas 67201 U.S. Postage PAID AlJn.ss Gn=tum Rapestal Permit 165 lhtwn Pause Garanrad Wichita, KS DIRECTORS

• Frank J, llecker (198I) Robert T. Crain (l981) Donaki C. Slawson (1983)

(e,4 7) CAnnam ard Chrf Exaurne Offsvr. (3) Crain Raday Gnnemy, F.nt Smre, KS (3,7) Ckunnan of the lhed and Pradw, lhka Gnnnatum and Frnt Nar==d limk & Slause Genomia, Wikra, KS Tna Ot,Illiblo, KS Halph Foster (1970)

(4,7) Viv lbau Gwral Gurud of the Dr. Newton C. Smith (1985)

Glenn Iliggs (1986) Gnntuny, Tskta, KS Physician, Arkaru.u Cuy, KS (6)( Aunam of the lhaurne Gnnmitriv, intorent ikmk, S.m Antonm, TX Donakt A.Johnston(1980) lawrence E. Wahh (1986)

(a.3) Gapware Gwtal Muuga, Mautuntrur, (6) Atromey arsl Fonner Faleval Durrit Gurt Ilowant lirenneman (1985) Inc., Immt, KS Jmige, Oklahnnna Cary, OK inerm w/ Fmarsul Gatedrant. llaston, KS Glenn L Kocater (1986) ADVISORY DIRECTOR A Dwight llutton (l976) Vvc lbdw Nwl.ur of the Gnntuny,

(:,2,4.7) R.tirol( Aunnan of the lhurd, F.=rth Wkhua, KS Italph P. Ficbach (1967)

I m uv6d Gne, W6Nea, KS latiral Chainam of the lhurd of the Gnntuny, g, , ,y,,,(g g2)

(3) CAunn.m and Chi.111autne offurr, * "h'"' K3 Wil.on K. Catiman (1978)

(a,7)( Annrun of the lhed asil%dw of the Gssru Airaaft Genemy, Wiku, KS Gnntunv, W6 hit.a. KS Mcar ehttd and omMttiv James J. Noone (1986) ==lgi ment C.T. Carter ( 1968) to) Artinney ars! R tiral Almmurnune judge f"' Commletecos ( ) Exautar; (a) Gentetsuum'-

(s,i) R.tmd Va. Ibdu, Pitsime ch. Dtirrst G =4rt of Sal 4.usk G=4rsty, W6 hira, KS (0 Nm W hMb K6%

In i ntarum \rtmtw Ruhfvtl Onnluny, (3) Nanmarmg, (6) Spud Luigarmn, en nce J. Sianton (l980)

(a, e,4) N4uha, "Wu hta Ikama, Jand," (7) YL**"R C,Q, Chantiler (1974) Taku, KS

( o.4.s,7)( Aunn,m ot the lhtrJ, Fmt Natund Ibd in W6 Lu, Ks Marjorie 1. Setter (1980)

(4) Ikdw, Sitta an l At=uua, Inc.,

AJ.otums ars! Nec IkLua nu, Tk hea, KS OFFICERS Wil.on K. Cmitnan,59' llolwrt L lliven,5)* William 11. Moore,34 Verna L llidgeway,59 n,.mm ,,i si, n.ast an,1 nml,w (w.4, v., nmtu v., nma.w . rma , Am*n vi, omtu . on n., Aftair, Kent it. Ilrown,42' lames T. Clark,46 IL D. I rothro,54 Jack Skelton,56 i w..,, vi,, nmLw b n m Lw . Au nnnt o. cat, .nl Am.m. soa.n Aonon, n.can, Ilkhant M. Ilailen 47' Italnh 11. Ihter, 5H' lllehant D. Terrill,32 J.F. Klauen, 57

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l L-Audited Financial Statements and Other Financial Information KANSAS ELECTRIC POWER COOPERATIVE, INC.

December 31, 1986 Audited Financial Statements Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Statements of Patronage Capital (Deficit) and Other Equities . . . . 4 Statements of Operations . . . . . . . . . . . . . . . . . . . . . . 5 Statements of Changes in Financial Position. . . . . . . . . . . . . 6

- Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 8 Other Financial Information Auditors' Report on Other Financial Information. . . . . . . . . . . 16 Wholesale Power Data (Unaudited) . . . . . . . . . . . . . . . . . . 17

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, 1986 and 1985, 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.

In our report dated March 10, 1986, our opinion on the 1985 financial statements was qualified as being subject to the effects on the financial statements of such adjustments, if any, as might have been required had the outcome of an issue with the Kansas Corporation Commission been known.

As explained in Note C, this issue was resolved in KEPCo's favor.

Accordingly, our present opinion on the 1985 financial statements, as presented herein, is different from that expressed in our previous report.

As discussed in Note D, the Kansas Corporation Commission issued a rate order ef fective February 1,1987 which included previously excluded utility plant costs. However, no provision was made in the rate order for the recovery of the depreciation, property taxes and interest costs for the period of September 3,1985 through December 31, 1986. KEPCo's management intends to request that the Kansas Corporation Commission allow them to recover these costs. The ultimate outcome of the issue cannot presently be determined.

In our opinion, subject to the effects on the 1986 financial statements of such adjustments, if any, as might have been required had the outcome of the uncertainty referred to in the preceding paragraph been known, the financial statements referred to above present fairly the financial position of Kansas Electric Power Cooperative, Inc. at December 31, 1986 and 1985, 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.

W ._

Kansas City, Missouri March 5, 1987 BALANCE SHEETS KANSAS ELECTRIC POWER COOPERATIVE, INC.

December 31 1986 1985 ASSETS UTILITY PLANT--Notes B and F Electric plant in service $216,954,014 $ 310,863 Construction completed not classified ---

216,414,864 Construction work in progress 846,445 ---

217,800,459 216,725,727 Less allowances for depreciation 9,982,356 2,555,428 207,818,103 214,170,299 Nuclear fuel, less amortization of

$3,720,755 and $1,400,478 at December 31, 1986 and 1985, respectively 2,174,390 2,899,544 209,992,493 217,069,843 CURRENT ASSETS Cash and short-term investments 264,611 1,244,846 Short term investments restricted for payment of long-term debt--Note F ---

37,100,000 National Rural Utilities Cooperative Finance Corp. patronage capital certificate 2,279,549 1,228,416 Accounts receivable from members 7,996,347 8,077,350 Receivable from power suppliers 4,730,000 696,248 Materials and supplies inventory 665,587 581,511 Other assets and prepaid expenses 312,385 231,597 16,248,479 49,159,968 OTHER ASSETS Investments in associated organizations 4,959,888 7,231,617 Deferred debits--Notes C, D and E 7,372,409 3,430,915 Unamortized bond issue costs 823,875 802,736 Bond fund reserve 3,969,000 3,969,000 Decommissioning fund assets 136,770 26,499 17,261,942 15,460,767

$243,502,914 $281,690,578 December 31 1986 1985 LIABILITIES AND PATRONAGE CAPITAL PATRONAGE CAPITAL (DEFICIT)

AND OTHER EQUITIES Memberships S 2,800 $ 2,800 Patronage capital (deficit) (7,534,162) (4,310,701)

Other equities 1,230,095 482,768 (6,301,267) (3,825,133)

LONG TERM DEBT, less current portion--

Note F 237,972,616 236,669,867 l

CURRENT LIABILITIES Note payable to the National Rural Utilities Cooperative Finance Corp. 174,945 3,030,378 Accounts payable 5,059,552 5,687,144 Accounts payable to members 5,029,000 1,483,618

~

Payroll and payroll related liabilities 25,222 19,832 Accrued property taxes 534,964 417,242 Accrued interest payable 143,889 199,771 Current portion of long-term debt--Note F 727,223 37,981,360 11,694,795 48,819,345 DECOMMISSIONING LIABILITY 136,770 26,499 COMMITMENTS AND CONTINGENCIES--Notes B, D, G and J I

$243,502,914 $281,690,578 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, 1985 $2,800 $(2,008,329) $ 157,938 $(1,847,591) 1985 Net Margin (loss) (2,302,372) 324,830 (1,977,542)

Balance at December 31, 1985 2,800 (4,310,701) 482,768 (3,825,133) 1986 Net Margin (loss) --- (3,223,461) 747,327 (2,476,134)

Balance at December 31, 1986 $22800 $(7,534,162) $1,230,095 $(6,301,267)

See notes to financial statements STATEMENTS OF OPERATIONS KANSAS ELECTRIC POWER COOPERATIVE, INC.

I Year Ended December 31 1986 1985 Operating revenue from member cooperatives $74,251,801 $61,708,116 Operating expenses:

l Power purchased 40,528,448 51,350,689 Nuclear fuel 2,726,491 945,727 Nuclear plant operations 2,210,426 1,344,697 l

Nuclear plant maintenance 1,399,400 180,329 Nuclear plant administrative and general 2,700,044 503,169 Administrative and general 1,904,739 2,102,725

, Depreciation and amortization 6,398,241 1,647,673 Interest 19,607,473 5,935,479 77,475,262 64,010,488 LOSS FROM OPERATIONS (3,223,461) (2,302,372)

Other income (expense):

Interest income 747,327 324,830 Refunds from power suppliers 5,049,360 2,641,494 Refunds to member cooperatives (5,049,360) (2,641,494) 747,327 324,830 NET LOSS S(2,476,134) $(1,977,542)

See notes to financial statements i

f _ _ ---

l STATEMENTS OF CHANGES IN FINANCIAL POSITION KANSAS ELECTRIC POWER COOPERATIVE, INC.

Year Ended December 31 1986 1985 SOURCES OF WORKING CAPITAL Net loss S (2,476,134) $(1,977,542)

Charges to income not affecting working capital:

Depreciation and amortization 6,398,241 1,647,673 Amortization of nuclear fuel 2,320,277 809,254 Amortization of bond issue costs 28,410 ---

TOTAL PROVIDED FROM OPERATIONS 6,270,794 479,385 Proceeds from long-term debt 2,042,000 72,796,000 Depreciation charged to deferred debits 1,027,129 846,819 Amortization of nuclear fuel charged to deferred debits and construction work in progress -

591,224 Decrease in investments in associated organization 2,271,729 --

Increase in decommissioning liability 110,271 26,499 11,721,923 74,739,927 APPLICATION OF WORKING CAPITAL Increase in investments in associated organization ---

982,509 Net additions in utility plant 1,073,174 26,030,273 Reduction of long-term debt 739,251 37,496,423 Increase in nuclear fuel 1,595,123 613,836 Increase in deferred debits 3,941,494 3,403,796 Increase in unamortized bond issue costs 49,549 802,736 Increase in bond fund reserve ---

3,969,000 Increase in decommissioning fund assets 110,271 26,499 7,508,862 73,325,072 INCREASE IN WORKING CAPITAL $ 4,213,061 S 1,414,855 I

I I

l f STATEMENTS OF CHANGES IN FINANCIAL POSITION--CONT'D I

Year Ended December 31 1986 1985 CHANGES IN COMPONEidS OF WORKING CAPITAL Increase (decrease) in current assets:

Cash and short-term investment $ (980,235) $ (357,075)

Short-term investments restricted for payment of long-term debt (37,100,000) 37,100,000 National Rural Utilities Cooperative Finance Corp. patronage capital certificate 1,051,133 1,228,416 Accounts receivable from members (81,003) 2,319,908 Receivable from power suppliers 4,033,752 (2,689,164).

Material and supplies inventory 84,076 581,511 Other assets and prepaid expenses 80,788 218,918 (32,911,489) 38,402,514 CHANGES IN COMPONENTS OF WORKING CAPITAL Increase (decrease) in current liabilities:

Note payable to the National Rural Utilities Cooperative Finance Corp. (2,855,433) 3,030,378 Accounts payable (627,592) (1,211,262)

Accounts payable.to members 3,545,382 (2,502,645)

Payroll and payroll related liabilities 5,390 1,668 Accrued property taxes 117,722 79,981 Accrued interest payable (55,882) 186,106 Current portion of long-term debt (37,254,137) 37,403,433 (37,124,550) 36,987,659 INCREASE IN WORKING CAPITAL S 4,213,061 $ 1,414,855 See notes to financial statements I

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L NOTES TO FINANCIAL STATEMENTS r

L KANSAS ELECTRIC POWER COOPERATIVE, INC.

December 31, 1986 NOTE A--

SUMMARY

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 as adopted by the Rural Electrification Admini-f stration (REA) . The more significant accounting policies are described below.

Utility Plant: Utility plant (see Note B) is stated at cost. Provision for depreciation is computed on the straight-line method at the following annual composite rates:

Electric Plant is Service 3.44%

Construction Completed not Classified 3.44%

Transportation Equipment 25 to 33%

office Furniture and Fixtures 10%

f Leasehold Improvements 20%

Depreciation and lease amortization for 1986 and 1985 amounted to

$7,425,370 and $2,494,492, respectively, of which $6,398,241 and

$1,647,673, respectively, was charged to depreciation and amortization expense with the remaining amount being charged to various deferred debits 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 f of equipment under capital leases is computed on the straight-line method over the lease period. Amortization expense for 1986 and 1985 amounted to

$25,009 and $27,283, respectively. Rentals paid under operating leases are charged to operations as incurred.

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Nuclear Fuel: The cost of nuclear fuel, including a provision 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

( assats 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.

g 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.

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Short-Term Investments: Short-term investments consist of NRUCFC commer-cial paper and are stated at cost which is approximately equal to market.

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{ NOTES TO FINANCIAL' STATEMENTS-CONT'D l-NOTE A--

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES--CONT'D f Receivable From Power Suppliers: Receivable from power suppliers consists of refunds from power suppliers 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 l the Wolf Creek Nuclear Plant (see Note B) are stated at average cost.

Unamortized Bond Issue Costs: Unamortized bond issue costs related to the issuance of the floating / fixed rate pollution control revenue bonds (see Note F) 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 from power suppliers for retroactive rate and fuel adjustments are received by KEPCo and are remitted to member cooperatives in accordance with Kansas Corporation Commission (KCC) guidelines.

NOTE B-WOLF CREEK NUCLEAR PLANT KEPCo owns six percent of the Wolf Creek Nuclear Plant (Wolf Creek), near

f. Burlington, Kansas. The remainder is owned by the Kansas City Power and Light Company (KCPL) and KGE. 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 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 f January 1, 1982. KEPCo's investment in Wolf Creek includes 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.

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h f- NOTES TO FINANCIAL STATEMENTS--CONT'D V

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

$22,033,000 of the $209,000,000 of KEPCo's investment in Wolf Creek

f. 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. The KCC issued a rate order effective February 1, 1987, which will allow KEPCo to recover these disallowed costs, as well as interest costs and property taxes related to the disallowed portion for the period from September 3,1985 through December 31, 1986, over the remaining life of Wolf Creek.

Depreciation, property taxes and interest costs related to the disallowed portion of $1,074,744, for the period from September 3, 1985 through December 31, 1985, and $2,920,264 for the year ended December 31, 1986, are included in deferred debits in the accompanying balance sheets..

NOTE D--UTILITY PLANT COSTS Certain utility plant costs totalling approximately $8,255,000 were not included in KEPCo's 1985 rate request, which was based on projected utility plant costs. Accordingly, KEPCo included the related depreciation, property taxes and interest costs of $1,017,878 for the year ended December 31, 1986 and $472,168 for the period from September 3,1985 through December 31, 1985 in deferred debits in the accompanying balance sheets.

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The February 1,1987 rate order included the above mentioned utility plant

[ costs of $8,255,000 in KEPCo's rate prospectively. However, no provision I was made in the rate order for recovery of the related depreciation, property taxes and _ interest costs for the period from September 3,1985 through December 31, 1986. KEPCo's management intends to request that the f KCC allow KEPCo to recover these costs. However, if their request is not granted, the amounts included in deferred debits will he charged to expense. It is management's expectation that KEPCO will be able to recover such costs.

l NOTE E--DEFERRED DEBITS Deferred debits include certain operating expenses incurred by KEPCo during the period of September 3,1985 through December 31, 1986 related

( to the operation of the Wolf Creek Nuclear Plant including depreciation, property taxes and interest costs of $3,938,142 and $1,546,912 at December 31,1986 and 1985, respectively, as explained in Notes C and D.

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NOTES TO FINANCIAL STATEMENTS--CONT'D l

NOTE E--DEFERRED DEBITS--CONT'D 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 $1,884,003 and are included in deferred debts in the accompanying balance sheet at December 31, 1986 and 1985. Such amounts will be recovered over a ten-year period beginning February 1,1987.

NOTE F--LONG TERM DEBT Long term debts consists of:

December 31 1986 1985 Mortgage notes payable to the Federal Financing Bank at rates varying from 7.325% to 11.486%, payable in quarterly installments (interest only through 1988) through 2018. Utility plant assets with a cost of $172,854,014 are pledged as collateral. $162,900,000 $200,000,000 Mortgage notes payable to the Federal Financing Bank at rates varying from 7.826% to 11.842%, principal and interest payable in quarterly instal-1ments through 2015. Utility plant f assets with a cost of $172,854,014 are pledged as collateral. 31,619,097 29,888,632 Floating / fixed rate pollution control revenue bonds, City of Burlington, Kansas, Pooled Series 1985C, variable f 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 44,100,000

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Advances from member and non-member L cooperatives ---

557,281 Capital lease obligation 80,742 105,314 238,699,839 274,651,227 f Less current portion 727,223 37,981,360

$237,972,616 S236,669,867

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(. NOTES TO FINANCIAL STATEMENTS--CONT'D l

NOTE F--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, 1986 are as follows:

Year Amount 1987 S 697,912 1988 741,540 1989 1,434,411 1990 1,680,445 1991 2,029,208 Thereafter to 2015 232,035,581

$238,619,097 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 on January 3, 1986 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 equipment with a cost of $136,412 and accumulated amortiza-tion of S68,206 and $43,197 at December 31, 1986 and 1985, respectively, has been capitalized in accordance with FASB Statement No. 13 and is l included in electric plant in service. Future minimum payments, by year and in the aggregate, under the capital lease obligation are as follows:

Year Ending December 31 f 1987 $ 41,255 1988 41,255 1989 17,190 Total minimum lease payments 99,700

( Amount representing interest 18,958 Present value of net minimum lease payments ,

80,742 Less current portion 29,311 S 51,431

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NOTES TO FINANCIAL STATEMENTS--CONT'D l

NOTE F--LONG TERM DEBT--CONT'D At December 31, 1986, KEPCo has an approved FFB loan guaranteed by REA with a balance of $162,900,000. REA has also guaranteed additional loans

[ of $30,000,000 and $10,000,000 (outstanding principal at December 31, 1986 f amounted to $31,619,097). KEPCo has the option on the $162,900,000 in FFB mortgage notes to elect short-term maturity dates of not less than two years nor more than seven years after the date of the initial advance or may elect a long-term maturity date of 34 years after the end of the calendar year in which the initial advance was made. On the maturity of a short-term advance, KEPCo may refinance the advance with another short-term advance with a maturity date of not greater than seven years 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, 1986, KEPCo had

$6,347,000 of advances with short-term maturity dates between January 1, 1987 and December 31, 1987. KEPCo intends to refinance these advances as described above or under other terms and conditions approved 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 mortgage notes to elect short-term maturity dates of two years or a long-term maturity date of December 31, 2015. On the maturity of a short-term advance, KEPCo may refinance the advance with another short-term advance with a maturity date of two years or may elect the long-term maturity dates of December 31, 2015. At December 31, 1986, KEPCo had $7,791,169 of advances with short-term maturity dates between January 1, 1987 and December 31, 1987. At December 31, 1986, KEPCo intends to refinance these advances as described above or under other terms and conditions approved by REA. Accordingly, these advances have been classified as long-term debt for financial statement purposes.

Advances of funds from member and non-member cooperatives resulted from the transfer of assets and liabilities from the Kansas Electric Coopera-f tive 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 stated that should an investigation result in the construction of a project or

{ projects, amounts of investigation and development costs transfered to project utility plant accounts are to be reimbursable to the systems

[ participating in the agreements on a pro rata basis. During 1986, KEPCo L refunded these advances of funds from member and non-member cooperatives.

During 1986 and 1985, interest incurred totaled approximately $22,328,000

( and $24,157,000, respectively, of which $19,607,473 and $5,935,479, respectively, was charged to interest expense and the remaining amount was charged to various deferred debits (see Notes C, D and E) or capitalized as part of the cost of capital assets under construction.

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k- NOTES.TO FINANCIAL STATEMENTS--CONT'D

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NOTE G--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 1986 and 1985 was $60,786 and $52,635, respectively.

f Future mininum lease payments for space currently leased at December 31, 1986 are as follows:

Year Amount 1987 $61,250 1988 61,250 The minimum lease payments can be increased to the extent that taxes and insurance paid by the lessor exceed 1984 levels.

NOTE H--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 f the plan for the years ended December 31, 1986 and 1985 was $39,929 and

$35,215, respectively.

NOTE 1--INCOME TAXES At December 31, 1986, KEPCo had net operating loss carryforwards totalling l approximately $67,003,000 available to reduce future taxable income and investment tax credit carryforwards of $11,900,137 as follows:

Investment

( Net operating loss tax credit Available carryforward carryforward Through

$ 8,199,000 $ --

1996 12,410,000 312 1997 17,124,000 1,378 1998 f 21,467,000 1,862 1999 4,443,000 11,896,585 2000 3,360,000 --

2001

$67,003,000 S11,900,137

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( NOTES TO FINANCIAL STATEMENTS--CONT'D l

NOTE I--INCOME TAXES--CONT'D f The difference tetween the net operating loss shown in the accompanying financial statements and the net operating losses for tax purposes in 1986 and 1985 is due primarily to operating expenses deferred for financial l statement purposes (see Notes C, D and E) and expensed for tax purposes and timing differences related to depreciation expense.

The investment tax credit carryforward will be reduced by 35% for years beginning on or af ter July 1,1987 and will be reduced pro ratably for the year ending December 31, 1987.

NOTE J--CONTINGENCIES In connection with the purchase of KEPCo's six percent interest in Wolf Creek, KGE and KCPL have filed lawsuits against KEPCo for approximately

$3,700,000 of KEPCo's capital credits 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 Wolf Creek to

{ KEPCo. KCPL and KCE 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 l KGE are unsuccessful in appealing these rulings, they have indicated they I

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 f 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

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legal counsel, these lawsuits are of doubtful merit and will be settled in KEPCo's favor.

Commitments for contruction and acquisition of utility plant amounted to approximately $563,000 at December 31, 1986.

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l l Ernst&Whinney 2000 ciiv cenier square 1100 h1ain Street Kansas City. 51issouri 64105 816/474-8050 Kansas Electric Power Cooperative, Inc. .

Topeka, Kansas

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The audited financial statements of Kansas Electric Power Cooperative, Inc. and our report thereon are presented _in the preceding section of this report. The information presented hereinafter is for purposes of addi-tional analysis and is not required for a fair presentation of the finan-cial position, results of operations, or changes in financial position of Kansas Electric Power Cooperative, Inc. Such information has not been subjected to the auditing procedures applied in the examination of the basic financial statements, and, accordingly, we express no opinion on

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( Kansas City, Missouri March 5, 1987 1

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F L, -

WHOLESALE POWER DATA (UNAUDITED)

( KANSAS ELECTRIC POWER COOPERATIVE, INC.

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Year Ended December 31, 1986 SALES

[ Noncoincidental peak demand 314,649 kW 1,276,396,113 kWh TotalenerQ b

( REVENUES Total electric sales $74,251,801 Average per kWh 58.17 Mills OPERATING EXPENSES Total purchased power costs (Includes transmission) $40,528,448  ;

[. Nuclear fuel expense, nuclear plant operations and nuclear plant maintenance. costs 6,336,317

$46,864,765

( Average per kWh 36.72 Mills Total administrative and general,

[ depreciation and interest costs $30,610,497 Average per kWh 23.98 Hills

( LOSS FROH OPERATIONS $(3,223,461)

Average per kWh (2.53) Mills

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NUCLEAR OPERATING CORPORATION April 6, 1987 U.S. Nuclear Regulatory Comission ATTN: Document Control Desk Washington, D.C. 20555 Ietter: NM 87-0110 Re: Docket No. 50-482 Subj: Transmittal of 1986 Annual Financial Reports Gentlemen:

Wolf Creek Nuclear Operating Corporation is transmitting one copy each of the Kansas Gas and Electric Company 1986 Annual Report to Stockholders, Kansas City Power & Light Conpany 1986 Annual Report, and Kansas Electric Power Cooperative, Inc. 1986 Audited Financial Statement.

This information is submitted in accordance with 10 CFR 50.71(b). If there are any questions concerning this submittal please contact me or Mr. O. L.

Maynard of my staff.

Very truly yours,

& f Bart D. Withers President arki Chief Executive Officer BDR:wbb Enclosuttes cc: P0'Connor (2)

RMartin JCumins 0 $

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PO Box 411/ Burtington. KS 66839 / Phone:(316) 364 8831 As Eoa opecetun.tv Emmy M F F4C \ ET