ML20065B051

Kansas City Power & Light Co Annual Rept 1993

ML20065B051
Person / Time
Site:	Wolf Creek
Issue date:	12/31/1993
From:	Jennings D KANSAS CITY POWER & LIGHT CO.
To:
Shared Package
ML20065A975	List: ML20065A970 ML20065A981 ML20065B051
References
NUDOCS 9404010132
Download: ML20065B051 (56)

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/:l 1993 1992 Increase k

(Decrease) y Tot 4 Operating Revenues (000's) 5 857.450

$ 802.668 68 pN ltthome (000's)

S 105.772 5

86334 22.5 y

N, li Average Number of shares Earnings Available for Common (000 s1 5 102,610 83.27)

'L2 61,008.726 61.008.726

> Per Commen Share:

l Earnings 1.66 5

1.35 23 0

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Dividends 1.46 1.43 2.1 1

Book Value 13.99 13.79 1.5 1

Year-end block Price 23 5

22 h 1.1 7

Return on Year-end Common Equty UM 11.8 9.8 20.4 Q

Dividend Payout (4) 88 106

( 17.0)

Construttion Expenditures nWs)

S 129,100 5 120,559 (0.3)

J' Electric Plant hWs)

S 3.240.384 S 3.133.050 34 Selected 5tatisucs Retad Kilowau-hour sales 11.303,855 10,658,008 0.1 g

Peak Load-Summer (kw )

2.810 2.624 7.4 Peak Load-Wmter (kw) 1,713 1,687 1.5 2

Number of Ret.ul Customers (as erage) 419.244 416.052 0.8 Number of Common shareholJers 31.267 31.687 (1.3)

Capitah: anon (4 total)*

3 Common Equity 51.2 40.3 Preferred Stock 5.4 5.2 j

1.ong-term Debt 43.4 45.5

• Exclusive of loneterm debt mcluded in current habihties.

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3 To Our Shareholders:

We are pleased to report t

a measurable improvement in 1993 financial results compared to 1492. Our electric system continued to operate well, and regional temperature patterns were more normal than last year,

,W a$1.66 versus $1.35. In August, the Board of Directors declared resuhing in carnings per share of 2.8% increase in the quarterly Common Stock dividend, to 37 cents a share, or an indicated annual level of $1.48.

l l

Generating unit performance was once again outstand-ing, and the integrity and reliability of transmission and E

l distnbution systems remained high. These factors, combined l

with low fuel costs, improved employee productivity, lower i

1 interest rates and reduced interest I

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.We received upgraded credit l ',(V Moody's Investors service,

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lo prepare for I

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[ Standard & Poor's Corporation

[ and Duff & Phelps.

compelilion anJ l r i:

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Record-breaking rainfall improsed growlb. [i t during the spring and summer TI.

months resulted in wide-spread r

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flooding throughout the Midwest, 3

E including portions of our l

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interruption of coal deliveries, and uere forced to remos e one power plant from service for 10 day s due to high water.

Property damage, expenses and deferred costs resulting from flooding were modest. Electric senice continued uninterrupted in most areas during the flooding, and it now appears that the local econ-omy has icturned to normal levels.

In Deccinber, the Niissouri Public Service Commission approved a 2.NA or approximately 512.5 mil-lion annual rate reduction for hiissouri customers. The reduc-tion recogni:cd the conclusion of an amortization period associ-ated wnh the recovery of certain carrying costs in the Company's last Niissouri rate case. The negotiations with the Ntissouri commission also resulted in a two-year, bi-lateral moratorium on initiating general rate changes. This offers an important opportunity for the Company to benefit from further economics of opention consistent uith our goals of excellence in service and customer satisfaction.

We continued to devote considerable attention to preparing the Company for increased competition, and n

devising plans for improved growth in the future.

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As we anticipate greater M

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costs u hich drive those prices, will figure

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8 49,,f increasingly in the Company's competitive-4@e

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our electric business builds on our high levels of f, {?;

customer satisfaction, which derive from excellent k"

operating performance. These twin capabilities of mar-M w3 a

keting planning and continued excellent performance will y;g ;-

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help shape our competitive advantage in the electric business.

hg lo that end, the Company will continue to strive for superior

- 9d financial and operating performance, whde competing on

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stranded investment, and other related issues. The Company's N

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A opportunities during this time will include diversifying our M

carnings concentration, by increasing investment in energy-g related areas of growth. T his will fulfill the strategic objectives y

,,?.i of the Company to maintalii excellence of current operations, gg stimulate and promote grow th in our basic senice area, and g

Q seek opportunities for growth which complement our core c.

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electricity production, distribution. and service. Our expec-tation is'for greater contribution of these non-regulated r

s subsidiaries to the Company's carnings performance. In 4

i 19% w e wi.ll be quantifying these expectations with an i

t integrated business plan, the highlights of w hich we will t

4 share with vob as thev mature. While we move forward l

with these plan'iling activities, we continue to analy e andl t

pursue opporturnties that offer the prospects for growth from economics of scale, strengthened and enlarged mar-kets for energy and' energy-related services, impros ed cus-tomer services, and greater stockholder value.

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prospects for growth in the domestic energy field l

generally. The demand by customers for greater ef ficiency and cost effectiveness, proactive envuonmental improvement ef fort.J.

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service responsiveness, and higherf standards of quality underpin our opti-mism. The Kansas City area and its itmeni-ties offer a distinctive point of difference for companies seeking new locations and for their i

employ ces once they locate here.1he diversity of the Kansas City area economy offers flexibility and strength to respond to business cycles which leave many areas of the country more vulnerable to these swings in the economy.1he fabric of comniunity support in this area, its diversity and positive attitude, are longstanding benefits of this region which provide the fundamentals for the strengths we enjoy.

We remain highly confident of the strengths of our i

basic marketplace, and the prospects for greater intensity of electric energy use in the economy. We are becoming better i

I prepared [or cOlnpetition, and welconle its opportutillies.

j I or the lloard of Directors,

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((p Servmg our ubrant metropolitan area is Kansas Cay Power & Iight Company. KCPL is a D/l medium-ste electric utility and the corporate successor to one of the world's first elecinc

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companics, generating electricity since 1882. licadquartered in downtown Kansas City, Missouri, the Company generates and distributes electricity to over 419,000 customers in a h.

4,700-square-mile area located in.'3 cronties in w estern Niissouri and castern Kansas.

1

/M Customers include 368.000 residence 3. 49.000 s ommercial firms, and over 2,000 industrials, Kg.

municipalities and other electric utilit es. About two-thirds of the total retail kilowatt-hour 3

sales and revenue are from Niissouri cut tomers and the remainder from Kansas customers.

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The Company's 1493 total available capacuy was 3.465 megawatts,includmg 3,085 mw of installed h,'

generating capacny plus 380 mw of net capacity purchases. Its 1993 system peak load was 2.819 mw and resulted in a capacm margm of about 20%. the equivalent of a reserve margin of about 23%. In hs addition to being a member of the Southwest Power Pool. a regional reliabihty council, KCPI. is one of 11 members of the MOKAN Pool formed in 1962 to share rescrve capaaty. coe.rdmate planmng for g

additional generating unns and expand transmiwon lines. Transmission connections wnh numerous gy utilines in Missoun. Kansas. Nebraska, lona and Minnesota enhance the Company s system rcliabihty.

%w Kansas Cuy is a key center in the interconnected sptem which enables regional and interregional bulk u$;

power transactions among electnc unhty systems.

k x

llanono [ily lb><=s d bel lal[omgiany Consolidated Italance Sheets Decernbcr 31 Asso s 1993 1992 (thousands)

Utility Plant, as original cost 1:lectric

$ 3,240,384

$ 3.133,054 (Norcs I,8 and 9)

Less-Accumulated depreciation 1.019,714 448.266 Net unhty plant in scnice 2.220,670 2.184.793 Construction work in progress 67,766 65.965 Nuclear fuel, net of amortizanon of

$7n.722.000 and $78,735,000 29.862 34.210 Total 2.318,298 2.284,468 Regulator) Asscr-DcfcricJ Wolf C#cck Costs (Notc D 20,118 39,484 Rcgulatory Asset-Reimcrabic Tascs (Norc I) 122,000 94,000 lancsiments and Nonutilit) Propcrty 28,454 27,570 Curicnt Asscrs Cash 1,539 128 Special deposit for the reurement of debt (Note 8) 60,118 Receivables Customer accounts receivable (Notc 5) 24,320 14,372 Other receivables 19,340 24,043 Fuel ins entories. at average cost 14.550 20,625 hlatenals and supphes, at average cost 44,157 45,263 Prepayments 4,686 4,209 Deferred income tasc3 (Note J) 3,648 5,553 Total 177,358 114,193 Dcfct r cJ Ch.nges Regulatory Assets (Notc f)

Settlement of fuel contracts 20.634 25.751 KCC Wolf Creek carrung to ts 9.575 12,3}l NIP 5C rate phase-m plan 7.072 Other 31,899 26,748 Other defc rred charges 17,732 14.776 Total 79.840 86,708 Total 52,755.068

$2.646.92 3 6.-

1L.... [ii, l'.m.., & l.;,,lii [. ml.,m, Den embct 31 1.l Alm Il n.s 1993 1092 (t hointm.ld Ca;>itali:atiim (Notes 7 and 8)

Common stock--authori cd 150A100,000 (hcc $tarrmcntd shates without par salue-61.008,726 hares issued and outstanthng-stated value

$ 449,647

$ 444,697 Retained earnings 418,201 405,985 Capital stock premium and expense (1,747) f 1.7 58)

Common 5tock Equity 866,151 853,424 Cumulain e preferred stock 89,000 89,000 Cumulatne preferred stock (redeemable) 1,750 1.016 1ong-term debt 733.664 788.209 letal 1,640,571 1,733,044

( ut rcnt liabilitics Notes p.nable to banks (Note 6) 4,000 Commercial paper (Note 01 25,000 33 000 Current maturnies of long-term debt i14,488 26,500 Accounts payable 50,421 77,162 Dnidends dedated 423 423 Aarued taxes 27,800 19.864 Anrued interest 15,575 12.444 Accrued payroll and sacanons 20,127 18 044 Acuued refueling outage cost (Note 1) 7.262 12.600 Other 8.531 7.o31 T otal 302,627 208.173 DcfcsicJ Cardits and Deferred income taxes (Note 3) 627,814 576,222 Othce liabihtics Delerred investment tax credits 87,185 91,530 Other 46.866 37.444 Total 761,870 705.701 Commioncnts and contingcmics (Notr 4)

Total S2,755,068

$2.646.02 3 The accompanying Notes to Consolidated Fmancial 5tatements are an integral part of these statements.

9

ILo.n. he, l'.,m.,4 b I f.,,onon, I

Consolidated Staternents of income Yc<u Dxded Detcrnbcr 31 1993 1902 1991 uhousamh)

Ilarric Opciating Rescnucs s 857.450

$ 802.608 5 825.101 Oponting lapcnscs Operation Fuel 130,117 130.032 132.100 Purthased power 31,403 21,868 22.226 Other 184,633 175.937 162.348 Ntamtenance 78,550 81,103 80.922 Deprcaanon 91,110 88.768 86.795 Taxes Income (Notc.1) 69.502 51.691 61.871 General 95.659 92.401 88.525 Amortization of NIPSC rate phase-m plan (Note 1) 7,072 7.072 7,072 Dderred Wolf Creek costs (Note l) 13,102 13.102 I l.7 34 Total 701,148 662.004 053,793 Opcianng im ornc 156,302 140.574 171.308 Ochcr lmomc Allowante for equity funds used aml Dnlm rions durmg construcnon 2.846 1.073 539 Delerred Elf Crcck carrying costs (Note l) 01 hliscellaneous (2,486) 2,505 (3.824)

Income taxes (Notc 3)

I,549 (505) 1.503 30tal 1.909 3.163 (900)

Imome Bcfore intctnt Charges 158.211 143,737 170,402 Intcont Chaigcs Long-term debt 50,118 54.266 03.057 short-tenn notes 750 2.749 3 299 Nhst ellaneous 4,113 2.173 2.o65 Allowantc for borrowed funds used danng tonstrucuon (2,542)

(1.785)

(2.312)

Total 52.439 57.403 06.509 icash Rnules Net income 105,772 86,334 103.893 Preferred stock dividend requirements 3.153 3.002 6.023 Larnings available for common stotL 5 102 619 5 83 272 5 97,870 Aserage number of common shares outstandmg 61,008,726 61.408,720 61,008.726 Earnings per common share s

1.66 5

1.35 5

1.58 Cash dividend., per common sharc 5

1.46 5

1.43 5

1.37 The accompanying Notes to Consohdated I mancial Statemems are an integral part of these statements,

f Ilmom Gi, I'm..., & b i ii [.,mi. m, l

Consolidated Statements of Cash 1:hms Year Ended December.3I 1993 1042 1941 uhoman.Is)

Cash ilow s i tom Net income S 105,772 5 80,Tl4 5 103.803 Ad ustments to reconcdc net mcome to net cash O 'Crafi"XAt li'itics l

l provided by operatmg actnines' Depreciation 41,110 88.768 80,705 Amorti:ation ol Nuclear fuct 8J05 0.583 0.140 Deferred Wolf Creck costs 13.102 13.102 10.043 MPsc rate phase-in plan 7,072 7.072 7.072 Other 8,234 5,02!

5.147 Deferred inwmc taxes (net) 25,502 23,070 28.004 kncstment tax credit (nct)

(4,345)

(4.521)

(7,004)

Allow ance for equity funds used dunng construction (2.846)

(1.073)

(539)

Cash flows affected by (hanges m:

Receivables (10.245) 2.848 I 3D36 I ucl irn entones 6.075 (850) i 17 Materials and supplies 1,106 654 (98)

Accounts payable (17,741) 4.838 2,861 Acrued taxes 7,936 2.404 2,045 Accrued interest 2,026 488 (1.24i)

Wolf Creek relucling outage accrual (5.338) 12.000 Settlement of luct contracts

'8.578) e Other operating acin itics 6.410 1,500 2.175 Net cash provided by operatmg at tn nics 243,144 253,737 252.440 Cash Iloa s I rom Construtnen expenditures (129,199)

(124.550)

(122,447) lincsting Ac tiutics Allowance for botrowed Iunds used danng construt tion (2,542)

(1,785)

(2,512)

Othtr unesting activitics 306 (4.580)

(5.404)

Net cash used m investmg activines (131,435)

(135,433)

(130,363)

Cash Ilou s I rom Issuance of long-term debt 324,846 134J50 135,250 1 maming Artnifics issuante of preferred stock 50,000 Reurement of long-term debt (271,480)

(143,230)

(163.215)

Retirement of pielerred stock (13,000)

(40.000) 5pecial depo,it for the renrement of debt (60,118)

Premium on reacquired stock and long-term dcht (4,077)

(2,321)

(5,516)

Intrease idecrease) m short-term horrowings (4,000)

(53.000) 42,500 Dnidends detlared (43,556)

(91.277)

(40,232)

Other finanting activitics (1,413) 274 (870)

Net cash used in Imancmg activnics (110.208)

(l I 7.804 )

(122.002)

Net increase (decrease) m cash 1,411 t6)

Cash at begmning of ear 128 128 134 3

Cash at end of car 5

1,534 5

128 128 S

Cash paid during the year for:

Interest (mt of amount capitah:cd) 5 47,361

$ 55.223 5 60.200 income taxes S 40,141 5 32.005 5 37,117 The accompanying Notes to Consohdated Emancial Statements are an integral part of these statements.

ILneoo fir, I'm... & Iil.i f.,ml.oo, l

Consolidated Statements of Cumulative l' referred Sto(L and 1 ongit erm Debt Dcccmbct Jl 1993 1942 Cumulatise Preferred Stock (Note 7)

(thousandu 5l00 Par valuc 3 80% - 100.000 shares issued 5 10,000

$ 10.000 4.50% - 100A10 sharcs issued 10,000 10.000 4 20% - 70A10 shares issued 7.000 7 000 4.35% - 120A10 shares issued 12,000 12,000 No Par valuc 3 04%*- 500 000 shares issued 50.000 50 000 Total 5 89.000 5 89 000 Cumulative Preferred Stock (Redeemahle) (Notr 7) 5100 Par valuc 4.00% - 17,557 and 10,157 shares issued S

1,756 1.916 I ong-Icrm Debt (culuthng onacnt snatur nics) (Norc 8) lerst Afortgaxc I:onds 7.33% waghted ascrage rate, amounts redeemed m 1993 S

5 244.080 9.40% scrics due 1004 60.000 54 series duc 2007 21,940 21,940 sa un cJ l9 Gcnceal Afortgasc flonds Medmm-Term Notes duc 1404-2008, o 78% and 7 20% wcighted ascrage rate at December 31 378,750 220,000 3 34%* I nvuonmentalImprosement Revenue Relundmg llond, duc 2012-23 122,846 31 000 Guaranr3 of Pollution rentrolltonJs 5..% series duc 2003 13.742 13.080 3.15%* duc 2015-17 106,500 100.500 l'nainerti:cd Picmiurn and Dnmunt (nct)

(114)

(191)

'Iotal 5 733.664

$ 788.200

'Vanable rate secunnes weighted ascrage raic as of December 31,1993.

Consolidated Statements of Retained Larnings Year Ended Derember 31 1943 1042 1991 (thousandd IIcgmnmg flalan< c 5 405,485 5 411,161

$ 394.204 Nct inwmc 105,772 86.334 103.893 511,757 497.405 503.187 Pocmium on RcautuistJ PrcJetacJ 5tod 233 1,704 Dn Jcnds DalancJ Preferred 5:01 k, at required rates 3,164 2.747 5.417 Lommon 5totk-5146. 51.43 and

$ 1.37 per share 40,387 88,530 84,815 I ndmg Italanc c (Norc 7) s 418.201 5 405.985 s 41 a o, The accompanying Notes to Consohdated Iinancial Statements are an integral part of these statements.

IL.u.o Ca, Pom.,4 Imi ii [omi,m.,

l Notes to Consolidated financial Statements

1. Sl:MNIARY 01 SIGNllICAN T ACCOl:NTING Pol ICllS System of Accounts The accountmg records of Kansas Cav Power & 1ight Company uhe Company) are maintamed in accordante with the l niform System of Accounts prescnhed by the FederalI nergy Regulatory Conumssion (ITRC) and generally aucpted accountmg pnnciples.

Principles of Consolidation 1hc consehdated finanual statements include the accounts of the Company and Kl.T inc.. a w hollv-ow ned subsidary. Intercompany balances and transatnons base been clumnated llecause Kl.1 Int s not an electrie unhty, its rocnues and expenses have been dassthed under Other income and Deductions in the Consohdated statements of Income.

NI.I Inc. was [ormed in I002 as a holdmg company for various non regulated business opponunnies The Company's equity investment m KLT inc. was 54.5 mdlion and $1 i mdhon as of December 31.

luo3 and 1002, respecineh.

L'tility Plant i uhty plant s stated at histontal costs of tonstruuion. T hese costs indode taxes. pay roll-related costs. indudmg pensions and other frmge benchts. and an allowante for funds used during construoion.

Allow ance for I unds t sed During Construction ( Al DC)

AI DC represents the cost 01 borrow ed f unds and a return on equity funds used to hnance construc-non projects and is capitah:cd as a cost of construcnon work in progress. The pornon attnbutable to borrowed funds is reflected as a redutnen of mtcrest charges u hde the ponion apphcable to equay fuads is show n as a non-cash item of other income. When a construction project is placed in scruce, the related AFDC as w cil as other construction costs. is used to estabbsh rates under regulatory rate prac-tices T he rates used to compute gross Al DC are compounded senu-annually and ascraged 8 3% for 1943. o.0% for 1942 and 7.7% for 1991.

Depreciation and Maintenance Deprecunon is computed on a straight-hne basis for jurisdictional pioperty based on deprecution raies apprmed by the Missoun Pubhc Service Commission (MPSC) and the Kansas Corporation C ommission (KCC L Annual composne rates were approximately 2.9% during the last three >cais.

Costs of improvements to umts of propeny are charged to the unhty plant accoums. Propeny umts reared or otherwise disposed are charged to accumulated deprecunon, along with remmal costs. net of sahage. Repairs of propeny and replacements of nems determined not to be units of propeny are expensed as incurred.

Nudear Plant Decommissioning Costs in 1086. the MPSC esumated the cost of decomnussioning the Wolf Creek Generanng Station (Wolf Creek) to bc S103 milhon in 1085 dollars. In 1984, the KCC estimaicd the cost to be 5206 nulhon in 1088 dollars. Then, in 1992, the MP5C increased its esumate to S347 milhon in 1000 dollars. In accor-dance with MPSC and KCC requirements. the jurisdational poroons of the Company's 47% share of these costs (current level of $3 2 milhon. annually) are being recmcred and charged to other operation expenses mer the hfe of the plant and plaud m an external trust fund to be used only for the physical decommissioning of Wolf Cteck limmedute dismandement method) whic h is not expected to occur prior to 2025 A study was fded unh ihr KCC and MPSC dunng 1993 estimating the projected decom-missiomng costs to be $370 milhon in 1993 dollars. Ilased on this study n is expeued that the MPSC w dl determine that no increase m the current inel of the Missouri junsdictional fundmg and expenses w di be necessary. A heanng befon the KCC is expected during 1904.

The imestment m the trust fund,includmg remsested earnings, was $14.3 million and $10.6 mdhon g

at December 31.1943 and 1902 respecovely. These amounts are reficacd in the Consohdated llalante Sheets under Investments and Nonunluy Propeny w uh the related liabihties for decommissioning induded m Deferred C redus and Other 1.iabihnes-Other.

Il

L,.... Ei, R,m. 4 h.,la I;m,i.,,,,,

Nudcar fuel The cost ol nudcar fuel o amorn:cd to lucl expensc based on the quantity of heat produced lor the generanon of cicuricity. Under the NuJear Waste Pohcy Act of 1082, the Department of Energy (DOI )

o icsponsible for the permanent dnposal of spent nuc! car fuel. Currcmly, the Company pass a quanedy fee of one null per kilowatt-hour of net nudcar generation to the D01 for future permancnt doposal scrtwes. Doposal costs arc c harged to fuel expense and rec ovcied through rates. These dnposal scruces may not be asadable prior to 2013 ahhough an intenm facihty may be av.ulable caiher. Woll Crnk has an on-sue, temporary storage faahtv for spent nudcar lud w hit h under current regulatory gmdchncs.

CJn provide storage spa (c untd approximately 2000. lhc Company beheses additional temporary storage space can be construard or obtamed, as nctessary.

Regulatory Assets Certam costs are ictorded as regulator) assets u hen a rate order allow s the dcierral and indusion of the amorn: anon m raics or u hen n is probable, based on historical regulatory picccdcot, that future r tes estahlnhed by the regulators uill recmcr amorn:ation of the (osts. If subsequent retmery is not permined, any unamorn:cd balance, net of in, uould reduce nct income.

Deferred Wolf Creek Costs Diders from the Kct and MPSC prouded for continued construcnon accounung for raicmakmg purposes aber the ' september 3,1083 wmmen ial in-scrvice date of Wolf Cicek through s picmber 30,1485 and May i 1086, respccovely. The deferral of cen.un other carry-c ing wsis was also authon:cd.1hese deferrals are bemg amorti:ed and iciovered in rates mer an approximate 10 car penod endmg m 1000.

S Recm crable laxes Sec Income Taxes below for dntussion.

Settlement of fuel Contracts l he ComparP. ihn deferred the (ost mcurred to terminate (crtam coal purchase contracts.

T hese wsts are bcing amoni:cd through the year 2002 KCC Wolf Creck Carrying Costs As ordered by the KCC, the Company defened remain carrying wsts through June 1901. The recoscry and correspondmg amorn:ation of this deferral mer six > cars began in July 1001.

MPSC Rate Phase-in Plan MP5C's 1086 Wolf Creek rate phase-in plan resuhed in the ddenal of a cash recmcry of a portion of the cost of equay and the carrying costs on the dcfctral. Recmcry of these deferrals was complcted December 31,1003 Lffectn e January 1, luut the MPsc approsed a h6% raie reducnon (approxim.ucly 512 5 nulhon annually) for the Company's Mnsouri ictad customers primardy to reflect the tomple-tion of this amonizanon. The reduchon wdl be spread nenly mer the Missouri retad customer dasses.1hn agreement wnh ihc MPsc and public counsci also indudes a prmision w heichy none of the panics can fde for a general increase or decrease in Masoun retail decnic rates prior to lanuary 1.100. Appmximaidy two-thirds of total retail sales are from Masouri customers.

0 Other Other regulatorv assets indade premium on redeemed debt, deferred flood costs. the deferral of costs to demmnnssion and decentanunate federal uramum ennchment lauhocs and othei lhese ddcrrals are amoni:cd mei various periods extendmg to 2017.

costs I air Value of Iinancial Instruments Ihr stated salues of the Company's knantialinstruments as of December 11,1493 and 1002 approxi-mated the fair market values based on quoted market prices for the secunnes or for simdar types of secuniics. If quotes were not atadable, the Compann incremental horroumg rate for sundar )pcs of diht was used

Ilmmm [a, R,m.,4 b.i a f...rm,3 l

Resenue Recognition Ihc Compam utih:cs cycle bilhng and accrues an estimated amount for unhilled resenue at the end of ca(h reporimg period Income Taxes The Company has adopted I mancial Accounting Standards Ibard (EA510 statement Na 100, kcounung for Income laxes This statement is not maicnally different from EA415tatement Na on.

w hich the CompJn) ad0pted in 1988. As J resu!!. the Company estabbshes deferred tax habihnes and assets. as appropnate, for all temporary dilferentes (aused w hen the tax basis of an asset or liabiht) ddfers from that reported in the huancui statements Ihese defcned tax assets and habihties must be det(rmined using the tax rates stheduled by the tax law to be in effect when the temporart ddferences rescrse.

The Regulatorv Asset-Retoscrable laxes primanly reflet ts the future revenue requirements nc(essan to recoser the tax benchts of existing temporary ddlerences flowed through to ratepayers in the past Dunng 1093. the net change m the Regulatory Asset-Retoverable laxes and Dc!ctred income taxes mcluded a 540 mdhon increase resuhing from the changes in the federal and Missoun state income tax law s effectne Janu.ny 1,1901 and January 1,1004, respectnely. Ahhough the Company has calculated us deferred tax assets and habihtics pursuant to i A511109, operaung income taxes weie recorded in accordance with ratemaking punciples, lioweser, if I A511100 w cre rcCccted in the Consohdated Statements of Income. net income would remain the same.

Imc5! ment tax tredits hase been dc[ erred wben unh:ed and are amorti:cd to income mer the remaming scruce in es of the related propernes.

Accrued Refuchng Ouiage Costs-Change in Accounting Principle Effective lanuan 1992, the Company changed its method of accounnng for incremental costs to be mcuned during scheduled Wolf Crcck refuchng outages. Instead of expensmg these costs as incurred, the Company is accrumg forecasted outage costs evenly unonthly) m er the umt's operating cple w hich normally lasts approximately 1H months.1he Company beheves this method of accounting produtes a more meanmgful presentation el >carly resnhs of operanons than the prior method Since the accrual began m January 1942, w hen Wolf Creek returned on-line from a refuchng outage. there was no cumu-latne cifcct for the change m accounnng piinciple. The pro forma effects for the 3 car ended December 31.1901 were not matenal but would hase mcreased net income by S3 2 million (50.0) per share).

liccause there was no refuehng outage m 1942, the effect of dus change decreased 1992 net income by 57 8 million (50.13 per share).

Imironmental Matters T he Company's pohey is to accruc environmental and cleanup costs u hen it is probable that a habil.

av has been incurred and the amount of the hahihn can be reasonably esumated. T he Company beheses a has appropnately recorded all suth costs related to emironmental mancrs Rc(lassifications Certam reclassdications have been made to previously issued Imancial statements in order to conform wnh the 1003 presemation.

2. PEN 510N Pl.AM AND 01111 R EMPIOT EE litTIIIf$

Pension Plans The Company has defined hencht pension plans for all its regular employees, includmg ofhce.s, proudmg for benefus upon rcorement, normally at age M. In accordance with the Emplovce Retirement income Secunty Act of 1074 (I RISA). the Company ha, satished at least us minimum funding require-ments. Itenefits under these plans rtflect the emplo>cci compensation. Scars of scruce and age at renrement.

llantao [ily lIower d big!alIoanpany Prosisions for pensions are dtt< rnuned unJer the iules piesribed by FASB 5taicment Na 87 Employers' Accounnng for Pensions. The follow mg is the funded status of the plans:

December 31 1493 1002 a,aser Accumulated Benefit Ohhgation:

Vested

$200.143 S173.021 Nona ested 6.200 6 llo Total 5215.484

$ 179. I 47 Determinanon of Plan Assets less Obhgations:

Fair salue of plan assets (a) 5315.170

$272.001 Proiceted benefa obhganon (b) 274.i25 241.002 Difference 5 35.054 5 30.049 Retoncihation of Ddfereme:

Contnbutions to trusts hepaid 5 10.677 5 8.750 Accrued hability (6.304)

(4,881)

Llnamorti:cd transition amount 16,756 18.828 linrecogni:ed net gam 18,147 11.494 l?nrecogni:ed prior servite cost (3 672)

(4,101)

Ddference s._35.654 s 30 049 (a) Plan assets are invested m msurance contracts. corporate bonds, equity sceunnes, l'.S. Gosernment securities. notes. mongages and short. term in estments.

(b) Ba ed on discount rates of 7% in 1993 and 8% m 1992; and increases in future salary levels of 4% to 5% in 1903 and 5% to o% in 1992.

Components of prousions for pensions (in thousands):

1993 1992 1991 5crvice cost

$ 8,671 5 7.301 5 o,162 Imerest cost on projected beneht obhguion 14,521 17,903 10,617 Actual return on plan assets (49,875)

(24.541)

(45,542)

Other 27.715 3.653 27.026 Net penodic pension cost

$ 0.0 32 5 4.316

$ 4.263 1.ongderm rates el return on plan assets of 8% to 8.5% were used.

Postretirement Benefits Other 1han Pensions in addaion to provithng pension benchts, the Company provides cenain postrenrement heahh care and hfe insurance benehts for substamially all retired employees.

Dunng the first quarter of 1993 the Company adopted FAsli statement Na 106-Employers' Atcounnng for Postreinement Benefus Other Ihan Pensmns. FA5B 106 requires companies to accrue the cost of postrentement health care and hfe insurance benefus during an emplo)ce's acuve years of service. Presiously, the Company expensed these costs as paid (pay-as->ou-go). The Company currently recovers these costs through rates on a pay-as-you-go basis. As of December 31,1002. the transition obhgation under FASB 100 was approumately $23.5 nullion, with amortization over 20 years beginning in 1993.

ML

L,.... [a,18.,,,..,4 byla li,1,y..,

N(t penodic postictucment henclit cost (m thousands' j

1993 Senice wst for benefit 3 earned dunng the S car nlb Imerest cost on accumulated postrctucment bencht ohhgation ( APlio) 1,893 Amorti:ation of unrecogni:cd transition obhgation 1,173 Net periodic postretirement cost 1684 1 ess: Pay -as-y ou-go costs 1.104 Net int rease in cost due to FA511100 5 2.575 The incicase m the annual health care cost trend taic for 1094 is arumed to be 1 M. dec reasing graduall) oser a seven year period to its uhunate lesel of ok The Companyx heahh care plan reqmrcs retirees to participate m the cost when premiums cuced a certam amount. Itecause ol ihis provision. an increase in the a-sumed heahh care cost trend rate by 1% in cach year would only intrease the APl;0 as el December 31.1093 by approximately 578n.000 and the aggregate service and interest cost compo-11Cnts of Det perlodlC postictirement bene [Il cost Ior l003 by ;IpproNimalcly b08.000.

Recentihanon of the status of postretirement bcncht pluis to amounts recorded in the Consohdated lialance shrets (in thousands):

December 31 1C93 i

APIlo.

Retuecs 5(10.b72 i Fully chg:ble actne plan parucipants (6.405)

Other actne plan paracipants (10.301) l nfunded APD0 (27.378)

If nicc ogm:cd loss 2.684 lf nrewgm:cd transmen obhgation 22.114 Atcrued postrctirement bencht ohhganon (included m Deferred Credas and Other laabdines-Other)

$ (2.575)

The weighted average disuunt rate of 7% and future salary leselincreases of 4% were used to determme the Al'l;0.

Long-Term incentise Plan in 1402, the shareholders adopted a 10 car. Long/rerm incentive Plan for ofhcers and key S

employces. Awards issued under the Plan cannot cuccd 3 nulhon common stock shares. Dunng itN3 and luo2, awards to purt base 63.125 and 80.000 shares of wmmon stock wcre granted uith exercise pntes of S21875 and $2l 625 per sharc. respetinely. Dunng 104L m ards to purthase 4,000 shares were canceled. Under granted stoc k options, recipients are entuled to t..cn c accumulated dnidends as though reinvested if the options are excicised and if the market price at the time of excr(ise equals or cuceds the grant pnce. Under the assumpton that all shares will eventually he exercised, the Company expensed 50.1 nullion and 50.2 mdhon in im and 1492. respectis cly, represenung acc umulated divi-dend and the thange in stock pnce smcc the daic of grant. At December 31. loot options for 145,123 l

shares of common stock were outstanding and options for 41.000 shares were exercisahic.

1 l

l l

l

lion... I:n,11... & Ii.,la I:,,,nt.o,

3. IN( OMI T.\\\\lN Income tax expense as shown in the Consolklated statemenis of Income consists of the followmg 1943 1992 1991 ah,,u undd turrent income taxes:

l~cdcral s 41,207 s 28.081 s 33.667 5 tate i,384 4.nu mn lotal 46,70n 32.7 18 30.223 Deferred mcome taxes, net:

I cdcral 22,274 20,488 2 3,60n State 3,228 3.441

4. 3ns l otal

_ 23,50)

'3.070 28 064 lin estment tax (redit. net (4,343)

(4.321)

(7,0001 i

Total mcome tax expense

$ 67,03 3

$ 52.lon 5 n0.278 T he following table shows a reconohation of the lederal statutory income tax raic to the effcune rate ic[let ted in the Consolidated Starcnients of Inconie. See Note I to tlic Consohdated Iinancial $taternerits for a discussion of the Company's income tax pohues 1943 1902 1941 Fedcral statutor) mcome tax r.uc 3 3.0%,

34.0 %

34og, Differentes between book and ias depreoation not normali:cd 1.3

[J 1g Amonization of unestment tax creda (2.3)

( 3 3)

( 4,3)

State income laxci 3,3 3Q 4p Other 2.0 14 1.2 Filcune inwmc tax rate

30. pb 17.7 %

3n 7%

The signific.n t temporan differentes resulung m deferred tax assets and habihnes m the Consohdated 11alance 5hecis are as follows:

De(cmber 31 1993 1902 uhmoando Ik preuanon differences

$476437 5440,70l Recoscrable taxes l 22p00 04,0g9 Diher 23534 23,ogg Net deferred income t.is habihty 5624,171 si70 000 lhe nt! deferred mcome tax hahdily consists of the following-December 31 1993 1942 aheuwnlo bross delcrred im orne tax assets

$ ( 6 3,187 )

$ (64,746)

Gross dcicned income tax liabihnes 687.358 635.415 Nei deferred inwmc tax habihty sn24.171 5570 nno

IL,.o. Di> IL.c & i yta li.oi....)

4. CO\\l\\lllMt. NIT AND CONilNGENtils Nuclear Liability and insurance 1he Pnce-Anderson Act cuncntly hmits the pubhc habihty of nutlear reactor onners to 59.4 bilhon.

meluding attorney wsts, for claims that muld arise from a nudear incident. Accordingly, the Company and the other ouncrs of Wolf Creek hase habihty insurance coserage of this anmunt whith consists of the maximum availabic conunertial msurance of $200 million and secondan Fmancul Protecuon bl P).

SI P coverage is funded by a mandatory program of defened preniituns awewed against all ow ners of lhensed reactors [0F an) nuelcar incidcN anywhere in the country. Ihe maximum assessment per reae tor is $70.3 million (537.3 million. Company's share) per inadeiit. T he ow neis of Wolf Creck are jomily and sescrally liable Lir these clurges. payable at a raic not to euced $10 nulhon (54.7 mdhon.

Companis shaic) per meident per y ear.

The owner 3 of Wolf Creek ako hase $2.8 bilhon of propeny damage, decontaminc. ion and decom-nussioning msurance for loss resuhing f rom damage to the Wolf Creek fauhties Nudcar msurance pook provide 51.3 bdhon of coverage, whde Nudcar Elcttric insurance 1.imiad (NElu pnnides s13 h liion In the esent of an accident. insurance proceeds must hrst he used for reaaoi stabdi:ation and site decontamination T he remaining proceeds froin the 52 8 bilhon insurance oncrage (51.3 bd-hon. Companyi shate),if any, can be used for property damage up to 51.1 bdhon (Companis share).

preinature decomnussiomug costs up to s11; i million (Company's share) in cuess of funds presiously wileued for decomnussiomng (as discussed m Note 1) with the remammg $47 nulhon (Company's share) available for either property damage or premature decommissionmg costs.

Ihe owners of Wolf Cicek hase also protured extra expense insurance from NEIL Under boih the NLil property and extra expense pohcies. the Company is subjem to retroaaive asstssment if NI ll losses. w th resped to eath pohc) year, eweed the accumulated funds available to the msurer under that pohcy 1he estimated maximrm retroaalve assessments for the Company's share under the pohties total approximatch 50 nulhon per > car.

In the esent of a catastrophic loss at Woll Creck. the amount of insurance atadable may not be ade-quate io ws er propen) damages and cura expenses incurred. Unmsmed losses, to the cuent not rewe ired through rates, wouki be assumed by the Company and could has e a material, adscrse effeu on the Companis finantial condnion and resuhs of operations.

Nuclear i uct Commitments At December 31. BN3, Wolf Creck's nuclear fuel commitments (Company's share) were approu-mately blh Inllhon for uranium concentrates through 1997, $12h million for enridiment through 2014 and $4D nullion for fabricanon through 2014.

Tax Mauers T he Companyi federal income tax returns for the > cars 1085 through ItN0 are presendy under exammanon by the internal Resenne 5crme (lRS1 The IRS has bsued Resenue Agent's Reports for the years 1985 through 1000. The Reports indude proposed adjustments that woukt udute the Company's Woll Creek imestment tax credit (llc) by 25% er approumatdy $20 mdlion and tax depreciation by 2% or approximately 5100 million. T hese amounts mdude the continumg effea of the adjustments through December 31.1991 These adjustments. pnncipally, are based upon the Iris comention that N tenain start-up and testing costs considered by the Company to be costs of the plant, should be treated as licensmg wsts, w hich do not quahfy for i f C or accelerated depreaanon, and (in cenam coohng and generating faabnes should not quahfy for ITC or accdcraicd depreciation.

If the IRS were to presad on all of these proposed adjustments. the Comnany wouki he ohhgated to make cash payments, calculated through December 31.104K of approsunatd> $03 nulhon for addi-tional federal and state income taxes and 550 milhon for corresponding intercst. After offsets for deferred inwme taxes, these paymenis wouki reduce net inwmc by approumately 530 milhon.

The Company has hied a proicst with the appeak dnision of the IRS. Based upon their mterpretation of r.pplicable tax pnnaples and the tax treatment el simdar wsts and facditics with respeu to other plants. it is the opinion of management and outside tax counsd that the IRSs proposed Wolf Creek adjustments are substantirlly o.ctstated. Management belieses any addnional taxes, together with mierest resulung from the final resolution of these maners u di not be material to the Company's hnancial wndition or resuhs of operations IS

Nanono [ily lb rd lh!d brngi4m>

Emironmental Matten.

1he Companis operanons musi comply u nh icdual, staic and lotal cmiromncntal laws and.cgula-nons lhe generation of electrien3 unh:cs produtes and requnes disposal of tenain products and by-pioducts induthng polyt blormated biphenyl (PClss), asbestos and other potentially h/:ardous materiak l he Federal Comprehensisc Enuronmental Response, Compensanon and I ubihtv Act, the SupedunJ"

!aw, imposes stnet jomt and several habihty for thow ul - generate, transport or deposit ha:atdous uaste as well as the curreia propeny ouner and prcJecessor owner at the tone of contaminanon T he Company conunually conducts enuronmental audus designed to deic(t contaminanon and assure com-phJnce With governmental regulanons However, wmpliante programs neccssary to meet future enu-ronmemal laws and regulations gos ernmg water and air quahty, mdudmg carbon dmxide emissions ha:ardous waste handling and disposal, toxic substances and the clfects of electromagnene hclds. wuld ure substantial change 3 to the Companis operanons or fatihnev ret Inlcrstate Power Company of Dubuque, lona (Interstate) bled a lawsuit in 1980 agamsl the CompJHy in the Federal District Court for the Distnct of Iowa secking from the Company contnbunon and mdem-nity under superfund law for cleanup costs of hazardous substances at the sac of a demolished gas man-ufaciunng plam m \\lason Cny, Iowa. The plant was operated by the Company for very brief periods of umc before the plant was demokshed in 1952 The sne and all other propernes the Company ou ned in lowa were sold to Interstate m 1957. The Company esumates that the deanup could cost up to $10 md.

hon.1 he Company ~s csumate is based upon an evaluation of available mformation from on-going site m estiganea and assessment adinties mdudmg the costs of such activmes.

August 1003. the Compam, along w nh other parties to the lawson, received a leuer from the F r.

inmental Protection Agency (FFA) nonfymg each such pany that it was wnsideed a poicnnally responsible pant for dranup msts at the sne. Ihc FPA has also proposed to hst the sne on the National Priontics let.

T he Company behes es a has ses cral vahd defenses to this action includmg the fact that the 1957 3 ales documents induded dauscs u hu h requnc Interstate to indemmfy the Company Imm and ag.unst all clanns and damages arising after the saic. Howcu r, the Coun in an October 1403 order rejected this position. ruling that the indemmty clauses u ere not sulhciently broad to mdemmfy for emironmental deanup. T his order will be fmal for appeal aher a trial to allocate the cicanup wsts among the parnes, uhu h is expected in 1904 Esen d un3uccessful on the habihty issue, the Company does mt beheve as allocated share of the deanup t osis will be material to its financial conthiion or resuhs of operanons Other Agreements t nJer long-ictm contractual arrangem(nts. the Company's share of purchased coal totaled approxi-matelv 517 mdhon in 1941 and 521 mdhon m 1942 and 1001. The Company's share of purchase com-muments m 1993 dollars under the remaining terms of the coal connacts is approximately s110 milhon.

The Company al30 purchases mal on the spot market.

T he Company has a transmission hne lease w nh another unlity whereby, w nh Ff RC approval, the rental pay ments can be increased by the lessor. aber w hich ihe Compan) is enntled to cancel the lease if able to secure an ahernatis e transmission path. Total wmmitments under this lease are $1.9 million per year and approumately 560 million eser the renuming hfe of the lease if the lease is not canceled l'nder other Icases, the Company incurred rental expense during the last ihree > cars of approximately 515 mdhon to 514 nulhon per > car. Rental commitments under these leases for raihoad cars, computer equipment. hudJmgs. a transmission line and simdar ucms are appmximaicly $114 mdlion over the remaming hfe of the leases u nh payments dunng each of the next fisc years ranging from a high of S17 milhon m 1994 to $8 milhon in 1008. Capaal leases are not material to the Company and are indaded m the amounts dscussed abose.

The Company has wnuatted to punhase capacuy from other utilnics through 2009. T he obhgations are as follows (cost m milhons)-

Cost Megawans(mw )

1004 512.4 470 1945 li 1 450 1996 19.4 500 1947 22 8 500 1908 22 8 500 1099 22.8 500 2000 10 6 150 T hercafter-annual amounts through 2009 10.4 150

I!m.m.da, R,m., & hyla 1. mi,,m>

15Al E 01: ACCOUNis RLCEIVAlllT In 1484, the Company emered into an agreement u nh a Imancial institunon to sell, wnh knuted recomse, an unJnided interest m designaicd atcounts recenahic. Accounts ictcivable sok! under this agreement totaled so0 mdhon as of December 31.1043,1492 and 1901. Costs associated with the sale of customer accounts reccisable of $2.2 mdhon, $2 6 mdhon and $3.5 nulhon for 1003.1002 and 1001, respecinclv, are mduded in Other intome and Deductions-Nlist eilaneous

6. Sil0R1-1 E RN1 DORROWING5 1he Company horrows short-tcrm funds from banks and through the sale of commeraal paper as needed L'nder mmimal fee arrangements, the Company has conkrmed bank lines of accht totahng 5153 mdhon, el u hich 5140 mdhon remains atadable at December 31,1003.

7. CON 1N10N SlOCK EQl' LIT. PRIIIRRED STOCK AND RI DII NIADEE PRLI ERRLD 510CK Retamcd cainings at December 31.1043 induded 516 nullion w huh was noi avadable for cash dmdends on common stock under the provisions of the Indentu e of htortgage securing iirst Ntongage Bonds Dunng 1441, the Company reacquired and retired the 800F00 shares of the 52.33 and 800.000 shares of the $2 20 Cumulatne No Par Preferred Stock with a combmed staied value of $40 mdlion This transauion mduded a 54 7 nuPhn prenuum of which S2.4 milhon was charged against capital stock premunn and expense and s18 nulhon was charged agamst retamed carnings.

In f chruary luol, the Company redeemed and rctired the 130,000 shares of the 7J2% Cumulaine Preferred Stock with a par salue of $13 nulhon. The (ost of redeemmg this stock included a prenuum of 50 3 nulhon which was charged against retamed canungs.

In Apnl 1402. the Company issued 550 mdhon. Cumulante No Par heferred Stock. Auction 5cnes A, stated value of $100 per share. The 50.9 million in c osts associated u nh this issue were charged to capo tal stot k prcmium and espen,c.

The issued cumulatne preferred stotk of Sol million may be redeemed at the option of the Company at pnces which. in the aggregate, total Sol mdhon Scheduled mandatory sinkmg fund requirements for the outstandmg redeemable 4% Cumulaine Preferred Stock are 5160.000 per S car.

At December 31.1093. the Company had authon:cd 407.537 shares of Cumulaine Preferred 5tock at a par value of 5100 per share, 1.572 000 shares of Cumulative No Par Preferred Stock and 11.000,000 shares of heference Stock without par value.

If any dividends on its preferred su ck are not dedared and paid w hen s(heduled the company couki not declare or pay dnidends on its common stock or acquire any shares in consideration thereof. If the amount of any such unpaid dnidends equals four or more full quarterly dnidends. the holders of pre-ferred stock voting as a single dass. could cle t representath es to the Company's Board of Dircuors.

On Januarv 3,1944. the Company registered 2.000.000 shares of its common stock with the 5ccurines and Euhange Commission for a Dnidend Reinvestment and Stock Purchase Plan (the Plan).

l'nder the Plan. common sharehoklers and employces and ducctors of the Company and its subsidiaries base the opportunity to purc hase shares of the Companis common stock by reimesung dnidends and/or making optional cash payments. Rather than issuing new shares, the Company imends to purchase the shares for the plan on the open market.

8. LONG-TERN 1 DEBT first 51ortgage Ilonds Ihe Company cannot issue addnional First N!ortgage Donds authon:cd by the Indenture of Ntongage and Deed of Trust dated as of December 1.1946, as supplemented as long as any of the General N1ongage Bonds (discussed below) are outstandmg, substantially all of the Company's unlity plant is l

pledged under the terms of the Indenture.

At December 31,1993. 560 milhon was held as a speaal deposn and used on January i 1994 to redeem the matunng 5n0 mdhon hrst N1ortgage Bonds.

u

ILo.. [a,16.. & l.iyla I;,,ol....,

General Ntortgage Ikmds Ihe Company is authori:cd to issue General N1ongage Itonds under the Ucncral Alongage indcuture and Deed of Irust dated December 1.1086, as supplemented The amount of additional bonJs w hich nuy be mued is subject to (citam restrictne prosisions of ihe General N!ongage Indentme. T he Gencial N1ortgage indenture constnutes a mongage hen on substantially all of the Company's utihty plant and is junior to the hen of the iinst Ntongage. L'pon teorement and/or nuturity of the remaming outstanthng lirst Ntongage lionds, the General N!ongage Ikmds wdl bewme hrst mongage bonds Ihe Company pledged General Ntengage lionds in the amount of 5531 million to secure the out-stanJing S453 nnllion (including 574 million clawified as ctirrent maturitics of long-icrm Jcbi) and the unissued 578 nuihon of Ntedium-Ictm Notes as of December 31,1993.

Scheduled Ntaturities The amount of long-term debt maturing in cach of the next fise > cars is as follows (in nulhons).

1944 - 5134 5;1005 - 530 0,1000 - 547.i;.l047 - 50 8; and 1948 - S61.u.

4. JOIN FLY-0WNED EL ECT RlC UllLITY PLANTS The Company has jomt ow nershil agreements with other utihncs providmg undn-ided interests m unhiy plants at December 31.1903 as follow s un millions of dollars):

Wolf Creek La Cygne latan L' nit

_l' nits l' nit Compan31 share 47%

503,

,0%

i tihty plant m senice 5 1,326 5

2s>

(

747 L sumated accumulated deprecunon Wrodutnon plant only )

s 270 s

150 s

ill Nudear fuel. net s

30

( ompany's act rodited capaciti-n>u 532 678 460 Eath paniupani must provide its on n huancmg.1he Company's share of direct expenses is induded m the corresponJmg operatmg expenses in the Consohdated statements of locome.

10. Ql'ARTERLY OPERATlNG REAL't.15 (if NAl DITED) ist 2nd 3rd 4th

_ Quarter Muarter Quarter puarter ahouunde 1"i3 Operatmg res enues

$ 191,380

$208.323

$256.910 5200.828 Operanng income 5 29.624 5 38.878

$ 57.865 5 29.435 Net income 5 15.800 5 25.731 5 44.020

$ 19321 Earmngs per wmmon. share 5

0.24 0.40 0.72 s

0.30 1o42 Operatmg revenues s180 022 5146,505

$229.425 5106,716 Operating int ome 5 23,793 s 34,351 5 50.638 5 31,790 Net mcome 5 8.321 5 21,335 5 38,044 5 18.634 Earmngs per common share 0 12 033 5

0 60 S

0 29 1he business of the Company is subjec t to seasonal fluctuations with peak periods occurring during summer months See Ntanagement's Discussion and Anahsis of f inancial Condition and Results of OpcIJtions for discussion oIltems affectinR t{ttarterly resubs.

l lL....,.. Gi, Pm...,4 b.l.i I m. em.,

RI PORI 01 INDI PI NDI.N1 A(TOl N1 AN i$

To the Murcholdcas and Ivard of Iwa ton Nunw Cin Ponci & I ght Compain:

We luse audlled Ikic acconlpan)Ing consobdated bakance shects and suicmems of tumulaiisc pre-lerred stotk and long. term dchi el Kansas City Powcr N 1ight ( ompany as of De(cmher 11,1941 and l

(

1902. and the irlated consohdated -tatements of mt ome,iriamed carnmgs, and iash flows for cat h of the three years m the penod ended December 11.1041 Ihese Imant ul sutcments are ibe responsibihty of the Compan>N nunagement. Our responsihihty is to expicss an opmion on these knancul sutuncms basetl on our Judits We tenducted our audus in accordance wnh generally accepted audamg sundards. I hose sunJards require that we plan and pcilonn the auda to obtam reasonable assurance about u heihei the inunual statements are hcc of nutenal unsstatement. An autht unludes cununing. on a icst basis, evidentc sup-ponmg tl.c amounts and disdosuies m the hnancul uiements. An auda also indudes assessmg the accoulHing principic5 used Jud signbant cshnutes nude by nunagement, as wcil as culuating the over-all Imancial statement presentation. We behese that our audus proude a reasonahic basis for our opmion.

ln our opinion, the consolidated liiuntial statriin nts icfcited to abost present fairly. in allinatetial re-pcus, the fnunual posinon of Kansas (ny Power & laght Company as el Detember ll,100) and luo2, and the resuhs of as operations and its cash llows for cat h of the thice 3 c.us m the penod enJcd Decembcr 31.1001. m omfonnitt unh generally aucpted accounung punopics.

As discussed m Note i to the consohdated knantial sutements, the Company thanged as method of at couiltinQ or incremental nu(l car ic(Uchng ouuge wsts in 1402 f

r 2 1 1

i M ANAGI MI N FS Di$Cl 5510N AND ANAIA Sl5 Ol iIN ANCI Al C ONDillON AND R13l 1.1$ 01 OPl RAllON$

Kil OWAlT (KWil) 5 \\l1 S AND opt R \\ LING RIT 1 Nl~l $

5 ales and restnue data:

lucrease (Deu case)

I rom l'rior Year 1993 1942 KWil Resenues KWil Resenues mM

.n e w Retail i. ales:

Residential i n, s 30 (12)%

5 (33)

Commercial M,

9 (2)%

(4)

Industrial 3%

3 6%

3 Other P;o lo l otal ictail 6%

42 (4)%

(34)

Sales for resale:

Ilulk power sales 27 %

13 51 %

12 Other n,

(6)o Total operating res enues 5 55 5_g2)

Ahhough 1003 icmperatures has c heen milder than nornul residcntul and connnerual sales rellco closcr to normal temperatures Junng 1001 compaicd io the abnornully mdd weather of 1992 and wilrmer llun lionnal weather of 190l. liased on the ( ompans s iccords

. tg degn day s ahos e 03 degrecs I ahrenheit. the summer of 1002 was the wolesi smte 1950. I he wt.uher wndnions ucie the prinury uuse for the vanances in residemi.d and tonunctual sAes although both luol and 1902 also reflco load growth Industrul kwh sales cononued to macase mer poor gars an. rcilco muca.cd large customer usage m the steel, auto manufat turing. gram processing and plasuc.ontamer produuion sectors.

L,,u.. fa, l'.. 4 byla L,oi.on, Bulk pow er sales reflect an increase in the number of sales conunitments, the Companv's high unii and fuel availahihty. and the requirements of other ricctuc spiems Changes in total revenue per kw h are due to (hanges in the mix of kw h sales among customer dassi-heations and the cffeci on certain clawifications of dechning price per kw h as kw h usage inacases. I css than 1% of the Company's retenues are affected by an automatic fuel adjustment prmision.

Tanffs base not changed matenally smcc 1088 I ffective January 1, loot Shssoun jurisdicoonal reta rates were reduced 2 06% or approsunately $115 nulhon annually, prinutily to reflett the end of the Missoun Pubhc senice Commission 61P5C) rate phase-in amorti: anon. This agreement with MP5C and pubhc counsel also indudes a prm ision w herchy none of the parties can ble for a general increase or decrease in Missouri retad electric rates prior to January 1, l006. Approximately tuo-thirds of toul retail sales are from Missouri customers.

b The lesel of future kw h sales u dl depend upon weather condnions, customer conservation cffons, competing fuel sources and the m etall economy of the Company's service territory. Sales to mdustnal customers, such as steel and auto manufacturers, are also affected by the national economy. The lesel of bulk power sales in the future wdl depend upon the availabihty of generating units. fuel costs, requirc-ments of other electric systems and the Company's system requirements.

Also. issues facing the electric utdity mdustry such as transmission access, denund-side management programs, mcreased compention and retention of large industnal customers could affect sales.

Ahcinatise sources of electricity, such as cogeneranon, could affect the r :iennon of, and fumre sales to larce mdustnal customers COMPLTIIION The Nanonal Energy Pohey Act of 1942 gase the Federal Energy Regulatory Conunission (f ERC) the authority to require electric unhoes to provide w holesale transmission line access (w holesale w hechng) to independent power producers and other utihties. Amendments to the Public Utihty lloidmg Company Act sunphfied the orgam:ation ef exempt u holesale generators, who engage exdusively in generating electntuy for uholesale markets Ahhough the Act prohihits FLRC from ordenng retail uheelmg (allow-mg retail customers to select a different power producer and use the transmission facihties of the host unhty to delncr the energyt the Act itself does not prevent the state commissions from domg so. Ihe state commissions howeser, may be preempted by other provisions of the f ederal Power Act. If retad whcchng were allow ed, utilities with large mdustnal customers could face intense to.apemion and potennally lose a major customer w hith could place an unfair, costly hurden on the renuimng customer base or shareholders.

The Company cononues to esaluate the effects of competition on as operations and position itself for a more compentise marketplace. It has been participatmg in wholesale whechng voluntanly and has tar-dh in place to accommodate these actnities T he Company has a diverse customer mix with less than 1% of total sales derived from industrial customers as compared to a utthty average of approximately 3M. The Company's industnal rates are competitively priced wmpared to the regional average and its rate strutture allows some fleubilny in setung rates. In addnion, Company sponsored programs help (ustomers manage their clcttricity wnsumption, and control their costs ITLI., PURCllASLD POWI R, OTilLR OPERATION AND MAINTENANCF LXPENSLS Wolf Creek completed its sixth scheduled refueling outage during 1993 and returned on-hne after D days. The Company began accruing for this outage in January 1992 (see Note I to the Consolidated Emancul 5tatements for a discussion of the 1992 (hange in accounting principlet The prior refuelmg outage began m 1941, before the Company started accruing for these costs. and extended imo January 1092. Because these costs, as well as a forced outage in 1992, had not been accrued, all expenses associ-ated w nh these outages were expensed as inc urred As a resuh.1992 cxpenses associated with Wolf Creek outages findudmg amounts accrued beginnmg in January 1942) exceeded amoums expensed in 1093 by $5. 6 nulhon ($0. 06 per share) and 1992 expenses were less than 1941 expenses by $4. 6 mil-hon ($0. 03 per share) The next refueling outage is scheduled to begin in 5eptember 1994.

Combined fuel and purchased power expenses for 1003 increased over 1902 and 1991 reflecting adthnonal sales. Parnally offsetting these inacases, fuel prices and freight rates have gradually deucased smce 1901.

Other operation expenses increased dunng 1043 and 1992 refletting increased generatmg plant pro-duaion expenses and highcr lesels of adnumstrante and general expenses mostly due to increased wages and employ ce benchts. and the 1903 acunal of postretirement henclits (see Note 2 to the Consohdated financul 5tatementst

ILou.l'a3'om.,4Isial',,,ni,m.,

l l

Ihc Compan) contlntles to plate emphasis oit (ost contiol. Protesses are being resieweti and changed to proside mcreased cllhiencies and unproved operations.

INCOsli 1 A\\l s Ihe thange iii income tax experise is mostly dtic to the changes in intome subject to iax. but 1003 also reflects an mercase of approximatdy 52 milhon in federalincome tax expense because lederal incoine (Jx rates increased.

GEN! RAl. J ANES Components of general taxes un thousandst 1903 1992 1441 Property taxes 5 45.54i 5 44.300 5 38.803 Gross receipts taxes 40554

.30.232 41,223 Other neneral taxes o,455 8.920 8 440 Total ecneral taxes 5 Oi 650 5 42.461 5 88.525 Inacases in property taxes since 1901 are pnmanly due to the Kansas school fmance legislation T he Company esilmates the effccis of this legislation will increase futtire property taxes over 1993 levels by approximatclv 51 nulhon.

The majonty of Nhssoun customers are billed gross receipts tax based on billed resenues.

OIlli R INCO\\ll AND DEDl'CilONS N1iwellaneous and Income laxes-1902 reflects gams from the sale of property and other contract scolements INil REST CllARGE S Dechnes m long term mterest expense sm(c 1991 reflect lower iniciest rates on sariable rate debi and the rciirement. repayment or relmancing of dcht. The ascrage intciest rate paid on long-term debt mtluding current matunties dechned to 6 0% m 1993 compared to 6.6% m 1002 and 7 5% m 1001.

Dethnes m short-term mierest expense reflect the decreasing mterest rates since 1001 and a lower lesel el short-term debt outstandmg dunng 1403. The average daily outstanding balance of shon-term debt decreased to 516 milhon in 1043 from 560 nulhon m 1902 and 550 nullion in 1991.

I RII FRRI D $10CK DIVIDl ND RI:Ql'IRL Nil NIS T he 1002 detrease in the preferred stock diudend requirements compared to 1941 reflects the refi-nanung of higher rate preferred stock with sanable rate preferred stock i ARNING$ Pl R SilARI (i P5)

EPs for 1003 increased 50 31 oser 1992 and i P5 for 1992 decreased 50 23 from 1991.

T he effetis of u cather inacased 1903 EPs by approximately 50 25 over 1902 and decreased 1992 EPS bs approximately 50 46 from 1001. Icmperatures in 1993 wcre mdder than normal. but doser to normal tompaird to the extremely mild weather in 1902 and warmer than nonnal weather of 1991. Based on a stansocal relationship between sales and the ddlerences in actual and normal temperatures for the Scar, the Company esumaics the effetis of abnonnal weather for the last three years u ere as follows-l 1493 1992 1941 I sumated effects of abnormal w cather on LP5 5 (0.10) 5 (0 35) 5 0.11 In aJdiuon to the effeus of abnormal weather on EPS. lug 3 upenses associated unh Lif Creek outages untluding ouuge accruals uhuh began in January 1942) decreased from 1902 resulung in an mcreasc m I P5 of 50 06 T hese same 1992 expenses decreased from 1941 causing an inacase in 1492 LP4 of 50 01 l

r.

Namao (ily bmer k bigblIompan?

LPs for 1003 and 1042 tcDett efforts of the Company to control costs despite increases m produuion expenses and general and admimsnatn t expcnso Also, siiuc 1091. the t ompany has rchnam ed a sig-mf aant ponion of its kmg-term debt and prelated stock to take adsaniage of kmcr rates 115 for 1002 also ref!cct gams from the sale.s of propaty and other wntrati sen!cments PROji'CT ED CONslRt CllON IAPLNDI f tlRI:S Construaion expenditurcs, culudmg Allx. were 5120. 2 milhon in loo 3 and are projeacd for the next in e 3 cats as folkm s-(onstruction l'xpenditures l404 1943 1400

}Qd7 1908 Total t nu.%w Generann; f adhurs

$ 52 8

$ 74.3

$ 07 4 5 l14.1

$ 148 3 5 4560 NutIcartucl 10.1 20.7 81 21.0 25 7 04.8 Transnussion fauhncs Il 1 10 6 85 8.7 88 47.7 D

_n ema genCral [at ilitics IO 4 53 7 52.N 52N 34.5 284 4 Total

$ 15 3 o p 154,3 5 1364 5 1067 5 237.3 5 8818 I he Companis resource plan includes four new 140 megawatt (mw) gavhred wmbustion turbines

%heduled to be wmpleted from 1998 through 2000. In addmon, the plan envisions a new 705 mw (250 mw. Companfs share) coal-fired generaung umt stheduled to begm construt non in 1997 and be com-plcied by 2002 lhe projcued wnstrmnon expendittues indude $200 2 nulhon of forecasted costs for

~

ihese projeas durine the next inc years.1he Company's resoune plan is subject to periodic reuew and modifnanon. T he ncsi integrated icsource plan will be submnted to the NIPsc in Julv 1904.

WOll C RI l K

\\\\ oli Crn k 8 one of the Companfs pnnapal generaung fauhues icpresenting approumately 17% of the Companis a,credued generanng capauty and 26% of the Company's annual kwh generation during the last ihree Scars. and has the lowest fuel wst of any of us gencratmg facihtics.1he plant operated at son. 851 and 50+ of capacin for 1003,1002 and 1001, respconcly. Wolf Creck's assets and operating cxpenses represent approxunatcly 50% anJ 20% of the Companv's total assets and operating expenses, respaindy ( urremiv no major equipment rtplacements are antkipated and the Company estimates the (ost of nudcar fuel per nullion lill'.aber the next icfuchng in the fall of 1094. will mercase from approumatch ln to 40% of the cost of wal liased on wntract prites and projeded future spot m.uket prnes for nudcar fuel and coal. it is antiopated that by loon the cost of nuclear fuel will in< rease m relanon to coal to be about one-half the cost ol coal.

An exanded shut-down of the unit wuld hate a substannal adscrse cifcu on the Company's busi-ncw. finJIkial tondition, and rcMl!ts of operallons fligher Icplatement power and other costs wouki he mt urred as a Icstilt. Although not expcaed, an abnonnal shut-down of the plant tould he caused by adsebe likidents at the plant or by atoons of the Nudcar Regulatorv Commission re.unng to safety wntcrns at the plant or other similar nuJear faahties. Il a long-term shut-down occurred. the state reg-ulamry wmmiwions could wouder reduung raics by excludmg Wolf Crcok inscstment from rate base.

Ownoship and operanon of a nudcar generatmg umt exposes the Company to potential retroactne assewments and propen) losses in excess of msurante coverage.1hese nsks are more f ully discussed m Note 4 to the Consohdated I manual staicments4 onmutments and Contmgencies-Nudcar 1.iabihty and Insurana EN\\ IROM11.N1 Al. \\1 A I 11 R$

1 he ( ompanv's pohc) is to act in an environmentally responsible manner and unh:c the latest in hnological prot esses powihle to asoid and ircai t ontamination. Ilic ('ompany continually conditets enuronmental andas deugned to assure mmpham e w nh gou cnmental regulanons and detect contami-nanon, lhmever. ihese a gulations are wastamly croh mg, governmental bodies may impose addmonal or more naid cnuronmental rcgulanons ulut h muld requne substannal changes to the Companis oper-anons or fauhnes

d,

\\cC No!c 4 to lhe bolholhblicd I til.Uh lal bl.ltenk nis-l ommilnlents alk! l onllligencies-1 inironmental Mallcrvlor ill% 1hslon ol t osts ol (omplLnh c u all til\\ 'It'llnient.II law s and leguhilions and a potenllal bahlhli (w bk b the Iompain bebn cs is not m.nciU! Io as bnant ia! condnMn m rc5ubs of opcrallonsl h)I cleanup t osts uliJci the I ct!cial supciltiini law.

(lean Air At Amendments of 1000 n'ntam tuo progf ams sigmlu anth allcctmg the utiluy indesin.

b. hell on die results of t ulit nt studicN the ( ompan\\ esillilales total tapita! c\\pcikllittles inceticd to L om-ph w uh csisimg and proposcJ at al iam program regulanons u dl he 's4.1 nulhon loi ihe mstaHanon of u'ntinuotts cinbsion nMnitoling equipment I he (i'mpaii\\ lias speiit s2M inilhon as of linenihrt 31.

IlN 3.uhl h.h IIRludtll the lemalinng SI 2 W!!llon in IbC llic \\ca pro}nled constritt llon c\\pcihbillies I uture acid IJln proR!am icgubulens mal Icquire ibe Comp.un to make f urther iapna! cspeihblures, but n is not powihle to csnmaic those expenJuures if an3 t he othu unhtprelated program calls la a sluth of tenam air toxic subuantes liased on the outcome of ths study. tegulanon of an tosu sub-slaihes nhludme Weicon. could be leymrn! l bc (omlMnV L Junol, al Ibb ume, pledR'I lbe bkcbbood of am suth regulations oc comphance costs C APII Al. RI QUIRI \\ll N I$ AND 1. IQt IDIIi on lanuar3 1 1004. % dis im estors scn ne upgraded the ordit iatmg of the Companis honds due to an impro\\cd knanual piohle and hm 40st operanons. Ihc ( ompants long icrm dchi was upgraded as follows sn urcJ pollunen u nnot honds to Al f rom A2. gennal mortgage hond-medunn-icrm notes to Al from A3. unsicured pollunon control bonds to A2 from Baal: and, prclencd stot k to a2 from a3. In addnion. m 1003 standard & Poor's torporation and Dulf & Phcips opgraJcd the Companyi Gencul \\lortgage DonJs as folhmv standard and Poori hom A-to A: and Dull & Plulps

[ron) 3 to A+ Impro\\ cd ranngs u dl make il Icss t ostly foi lhe (ompain lo rahe lunds w hen nt cded and u di tomnhuie to i' Compaufs iommucd ciforts io meet the (hallenge el inacased uimpcimon m the unhn mJusin-I he fompanis tJpital slrth ture at Dilember 31,1003 (unituhng cuirent maturitics of long-icim dt ht less spa ul dcposa for icincmem of dehti tonssted of 49 1% wnunon stoc k equity. i 1% prc-Icned stot L and 45 m long term dcht. I hc ( ompanps goal is to m.umam a capual sn ut ture m u hu h the pertentages el coninion stot k equn\\ and long-tom dt ht are approsnnatch equal.

lhe ( ompJn\\ t urrenth' eslinutes that it uill be able to mni a sigmhcant pornon el the piol cued tonurutnon expendourcs wilh imonalk <cncuted funds li s annapated that funds for matunng dcht through 1008 totahng 4274 5 nuthon udl be prouded f rom opcunons ichnanungs or short-teim dcht.

As of Dncinher 3l ItN3. the Comp.nn had 98 nulhon of rcghtard hut umwurd Muhum-Iron Notes and$140 INNlon of tmthed bank bncs of c reda. [ ucenamnes u hk h alla t the degrec to u ha h these capual reqmrements udi he met unh funds prouded hom operanons mtluJe such arms as the dfnt of m0 anon on operatma espenses. Ihr incl of kw h sales regulaton at oons wmphante u nh f ularc enu-ronn.cmal regulations.nadahihty of the compant s gencianng unas and the incl of bulk powu salts ullb olha unhncs.

'Ille ( ompan\\ currcnth uses an.ht cidatal dt prnijlion method for la\\ purposes Iheaticktaled depicuation on the Lil ( rcck plant has rcJutcd the ( ompany s tax pauncms donng iht last ihice

\\ cars k approxim.uch i30 nulhon per \\ car Aucloated ikpraiation on u oil Occk cods in 1004 we Noic 4 to the ( ensohd.ned I manual 5tatements4 ommitments and Conungenuc+ l'as Mancis-for docu%)on of the Companyi falaal ino,nic tax rcttirns foi the \\ cars 1085 through luoD w hn h are presently under audu h\\ the Imctnal Rn enue N n a c.

In order to take aJeanuce of the potenaal henchts mhcient m a largo energ\\ s\\ sicm. the Iolnpain nligbl nhllI JdJitional dt hi and/or iwuc.ukhnonal t qunt to Imantc s\\ sicm grow th or new grow th opporturatics. thiough businew tombinainos or other im estments such as an cxcmpt u bolesale gener.nor N

ILo... [a, R,,... & byla L,.opo..,

5 Summary of Operations and l'inancial Data Summary of Earnings 1993 1942 1991 1900 1980 1083 Opcraring Rescnucs (000 s)

$ 857,450 5 802,668 $ 825.101 $ 815,570 5 700.216

$ 583,138 Operating fxpenscs wtysi 701,148 662,044 _ _653,793 631.243 602h85 478.653 Operating incomc (0001) 156,302 140.574 171.308 184,327 187,531 104,483 Orher income and Dcdiu rions (0003) 1.000 3.163 (900)

(6.350) 6,477 53,834 Incomc hcforc inrcrcst ( harges (000i) 158,211 143.737 170.402 177,068 194,008 158.317 Intcrest Charges (000i) 52.439 57.403 66.500 75 236 85.300 31.836

{

Ncr Income (000i) 105,772 86.334 103.893 102,732 108.618 126,481 Pr cfer red and PrcJcrence sto.k Disidcnd Rcquirements (000M 3,153 3.062 6.023 6.360 6.359 21.570 ApphcaNc to Common Stoc k (000V S

102.614 $_ 8 3.272 5 47.870 $

96.372 5 102.254

$ 104,011 Ascragc 5harcs Dursranding 61,008.726 61S08.726 61,908,726 61,899,526 61,854,514 50,556,776 j

Larnings pcr Common sharc 5

1.66 S 1.35 $

1.58 $

1.56 5 1.65 5

2.08 Rcturn on rear-cnd Common fquin 11.8%

9 81, 11.4 %

11.3%

12 2%

15.7%

Cash Dnidends rcr $haic 1.46 $

1.43 $

1.37 $

1.31 $

1.25 5

1.10 Capitali:ation (000's)*

Common 5 tot h f quay 5 866,151 5 853,924 S f60.229 $ 851,282 5 835,917

$ 666,273 Pr efencd srot h 89.000 S 80,000 $

52.000 $

42 000 5 02.000

$ 112 000 Picfencd Stoc k (RcdccmuNc)

S 1,756 $

1,416 5 2.076 5 2,236 $

2,306 56,156 Picfcrcncc 5tock (RedermaNc)

- 5

- 5

- S 45.833 Long-rcrm Dcht S 868,152 $ 814,709 5 822 580 $ 850.400 $ 018h34 S 805,644 Other Data and Ratios Construction lapi nduur cs <000V

$ 129,199 5 124,554 $ 122,447 $

92,558 $ 103,169

$ 182.547 Total Asscrs (000V

$ 2,755.068 $ 2.646,023 $ 2.615.030 5 2,548.854 S 2.620,826 5 2,071,015 Ikk valuc pcr sharc 1199 $

13.70 5 13.90 $

13.75 $

13.50 11.76 Common Stock fquay Rorio 51.2 %

49.3%

40.9%

50.2 %

46.2%

39 5%

Common Stoik Pricc lhgh 26% 5 2% 5 23% $

18 $

18W 11%

lew S

2!N $

19A $

17A $

14% $

14%

86 Ratio of Lasnings to 1ised tharges 3.80 3.12 3.22 2 96 2.92 3.43

• Capualcanon includes amounts to be redeemed or purchased and currera matunnes

. _ _ _ _ _, _. _ _. _ _ - - - _ _ _ - - - - - - - - - - - - - - + - - - - - - - - - - - - - - - "

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Corporate Information 511 \\RI1101 Di R RII AIlONS DIRI C 1 DI PO511 Of DIVIDI.ND5 1RAN51i R AGl:Ni AND SIUCNNICIhlNIN i er shaicheldct mfornunon or assis-( onsenient dnet t dcpesa of dnidends tante suth war auount, please call or is as.nlahic to K( I'l sharehoklers w ho I or Conunon and Preferred $ tot k

% rite (bc 5halcholdct Relations u isli to luie unidends deposacd Un ied Mmoun Ibnk n2 Depaumt nt at the adshess htlow duetth to personal thet king, sarmg' 9cunties IraWer Dmsion Out-ol-state sluf t boldels InJ\\ call or other auonnts. l lecong duccl p g pg 4gggg4 1-800-2434 5 3 deposa will(hange oniv the m.uhng limsas Can MO 64141-0004 Kansas ( ns Powc r N 1ight ( omp.un of d "de"d' ^"""dl d"d 'lu.u teily gjn.gggfgg sharehohk r Relations ITcpanment repons and piou materials uill not he P O.1;osalsn7o affetici l'or an enrolhnent form.

g ggy gg g Kansas Cut MO 64141 o N please conta t 5h.ucholder Rel.nions or o

'y n. 3 so.,g 3 3 i nued Missoun IUnk Copics of the Company's 1003 annual report filed with the $ccunties and INVI 510R RI 1.A IIONg DIVIDI.ND RI'INVI.51 M1 NI &

lyhang Gmunission on I orm 10-K 51OCK PURCll \\51. Pl.AN "3IIhCP'*idCdd'""Chd'ACI"d"F Mcinbcrs ol. he hnancul wnnuumts sh.neholder or beneficial ounct of t

sa kmg corpo: ate m!ornunon nur con-Al 'h.uchokler retjucst. K( P1 ha' shares in the Company's stock upon tau im estor Rc!anons.n 81o-3 30-2 312 begun a new Diudend Rennesuncnt w ritten reiguest to:

anJ ' tot k Punhase Plan t he Plan is a Jcanic $cil 1.at:

Ell ANGl. Of ADDRl 55 tonten ent.nid etonoinical way for sharchoklers to inacast their n5 vest-orporate $ccretary lo icpon a (hance of adduss usc the Kd"'d' CI') I""cr & l.ight Company nim PI h m M Iollil altA bed td j otir dn tdctld t ht t k P.O. 80% 4186N ctd!!Hlus!!alne t lutges alc pJid h\\

or sclhi % rillen th>!!ht.irion to Kl I,I. paith IpJllts p.n a nonlinal bro-Kansas ('ity. MO 64141 4674 sh.nchoklcr Rclanon-kcr comnussion to punhase or sell Plan shares I or det.ul, and an enrolhnent Dt P1ICAI1. M AllINGS form. toiuati sharcholder Relations Il )ou arc ! cit nind dilphtate nuthngs

\\ our stik k in.n bc IcdistercJ in thlfcrent uan i or awstante m wn-si'bdaillb2 \\ ou r.h t t'u nts of c!nnli '*lilg duphc.uc nuihng,. ph ase wntaa l~nned boun 1:ank

1 L...... fit, 18.... A b.,1,i [.........,

1 WO-Yl Alt CO\\l\\lON $ 10C K lits l ORY I he Companis Common 'stod price sange and dnith nds luid pci slute u cic as loihiu s.

1003 1002 DnidenJs Paid Quartcr

!!ich I.ou lheh low 1u04 1993 1002 I irst 2 '3 -

'T-los 50 17 50.3n 50 33 setond 25 23

')

' 0 '.

0 3n 0.3n 8

l hird 20 14; 2 4..

21 0 37 0.36 I ourth 25 21, 2 3,.

21; O T7 0 lo IXil.\\ ngl:1IMING \\ND 5I0( K 5YMI;Ol.

l'RI I i RRl:D 5' LOCK DI\\'IDI NIX C_n m n ec xemo,< m 1mm Neo om.n,c,ix m m a _ P,m,,ca e and the Miducst viock lihance ucie declaird m cath quarter of 1943 and 1002 as follou s:

Nbl: h ker % mhol Kl 1

( tunulain e Preferred 5 tot k Number of Common sharehokh rs. 31.2ni.u Decemhcr 31.1003.

h $

6 e

k L

he dnidend intome and no portion was considered 4 ggg

gg a rclllIn of t'apital 4.20T 1 03

4. 3 E.,

1.0875

4. iOo 1.125 B

.m.

ILm.,,, fii, I'm,.., & l.i.I,i L,,ol,,,,

I

~

Company Officers

• DRllJLNNINGS,47 i RANK l. IIRANCA,46 JOllN J. Di51ITANO,44 Chan man ofIhe ItoarJ Vu e PicsiJcnt - Poacr bupply Trcasuocr and Presulcnt 1080 la80 1980 Cll1RI15 R. 001 L,47 J LANil: $1:11. l ATZ,42 IlERN ARD J. IllAUDOIN, 31 Vnc Picsu!cnt - Customcr Scniccs Corporarc Sccretary Senior Vice Pursulcnt - finaruc and load 1991 Chic] Finarn ial 0][iier 1084 JA5tl$ L. IlOGAN,61 NFil ROAD %IAN,48 Yu c Picsident - Ensironmental Contr oller SA\\llTL P. COWL LY, 39 and Rcscart h Scnit cs 1080 Senior Vis c Prcsidcnt - Corporate 1984 Allan s and chic:/ l cgal Of!a ci

\\ LARK C. 5110LANDLR,48 1977 SIARCUS J %CKSON,42 Gencial Counsci Vue President Pouct Produstion 1086 RONAl D G. WAS$0N,49 1989 Senior Vic e Picudcnt -

1,sn is i,iaiso as, na,.i,a n a, ;.,c,,,,.o AJnunntratisc and Tn huical Tl RNER WillTL,44

s "

Scn u cs Yu c PicsIJcnt-Communu ations 198.1 1000 w1--t Board of Directors DRCE JLNNINGS*

W.1IlO%lAS GRANT 11 GLORGL: A. RL'S$Ll L Chanman of the lloarJ Chairman of the I;oarJ and Pr esident, and President Chief hn utisc O.[ficci, l'niscusity of Shssoun ScaliclJ Capaal C<npination Wil llA51 11. CLARK *

- Jn cu sificJ DR. LINDA IlOOD TAIIlOFF Pr esulcnt.

insur aru c, finaru ial and Picsident.

I'thanIcague labolaron sen a cs (onrrany Talbott & Assotiarcs el Grcatcs Kansas Cu) m onsultains in plannmg, sommunity scnitc axcm s GEORGI 1. NITII l.S, JR.

managcment and Jciclopment Chairman of the floarJ ROlli RT J. DINI LN

• Alalucst Alinctals. fru.

ROlli RT II. WI $1*

( hair man.

-constrm rien minctal Chairunan of the BoarJ l as nc, Inc.

pr oc cssing and quar r) and Chicf bn utnc Offurr,

-drillmx vni(cs tempany opc,anons Burict.\\lanufa< turing Company Pi csident.

-supphcr of non-rcsidcnnal AR~llil'R J. DOYL I.*

Yampa Resource Assot jatcs, Inc.

Eniljjnx sy stcms RctinJ Chanman of the BoarJ

-nnned land ralamation operdtloll W mb, f I w.uw t emme m-

11,...... I:ia, l'.... & l.iy1,i I:,,,,,,,,,,,,

CRI DII S Designed by:

West Associates Adscrtising and Design, Inc.

Printed by:

The lim cli Press Photography by:

latan Power Plant Rick McKibben Arrow head Stadium. West Gardner substation and Drue Jennings - Chuck Kncyse Communications Dish - thil licinsohn l

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KANSAS ELECTRIC POWER COOPERATIVE, INC.

Financial Statements for the Years Ended Decernber 31,1993 and 1992, and independent Auditors' Report 1

0 qw

Deloitte&

Touche Suite 400 Telephone- (816) 474-6180 1010 Grand Avenue Kansas City, Missouri 64106-2232 Independent Auditors' Report Board of Trustees Kansas Electric Power Cooperative, Inc.

We hase audited the accompanying balance sheet of Kansas Electric Power Cooperative,Inc. as of December 31,1993, and the related statements of operations, patronage capital (deficit) and other equities, and cash Gows for the year then ended. These Gnancial statements are the responsibility of the Cooperative's management. Our responsibility is to express an opinion on these financial statements based on our audit. The Gnancial statements of the Cooperative as of and for the year ended December 31,1992 were audited by other auditors whose report, dated February 17,1993, expressed a qualified opinion on those Gnancial statements and included an explanatory paragraph that described the departure from generally accepted accounting principles discussed in Note I to the financial statements.

We conducted our audit in accordance with generally accepted auditing standards and the standards for Gnancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Gnancial statements.

An audit also includes assessing the accounting principles used and signi6 cant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

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

In our opinion, except for the effects on the 1993 Onancial statements of the matters referred to in the preceding paragraph, such financial statements present fairly, in all material respects, the financial position of Kansas Electric Power Cooperative, Inc. as of December 31,1993 and the results ofits operations and its cash Gows for the year then ended in conformity with generally accepted accounting principles.

Di V February 18,1994 DeloittaTouche Tohmatsu International

KANSAS ELECTRIC POWER COOPERATIVE,INC.

BALANCE SHEETS DECEMBER 31,1993 AND 1992 ASSETS 1993 1992 CAPITALIZATION AND LIABILITIES 1993 1992 UTILITY PLANT:

CAPITALIZATION:

Electric plant in service

$ 201,548,014 5 200,168.121 Patronage capital (deficit) and other equities-Less allowances for depreciation 24.513.462 20,931.809 Memberships 5

2.9no 2.900 Patronage capital (deficit) unallocated and other equites (5,947.207)

(9360,747)

Net utthey p! ant 177,034.552 179.236.222 Total patronage capital (deficit) and other equities (5,944 307)

(9.357.847)

Construction work in process 1,215.106 1.082,312 Long-term debt,less current portion 226.630.800 230.192.632 Nuclear fuel,less accumulated amortization of $10,541.087 and $10.594,156 at December 31.1993 and 1992, Total capitalization 220,686,493 220,834.785 respectively 3,998.923 4.839,135 LIAlllLITIES Total utility plant 182.248.581 185.157.669 Current liabihties Accounts payable 4,242.567 3.799.167 RESTRICTED ASSETS Payroll and payroll related habilities 63.524 57,380 Cash and cash equivalents 214,956 209.858 Accrued property tases t 395.290 1305.242 investments in associated organizations 2.619.728 2.668.927 Accrued interest payable 3.212.821 719.032 Bond fund reserve 3,925,832 3,923,577 Current portion oflong-term dett 4.075.406 3333.865 Decommissioning fund assets 1,714.265 1384.226 Total current habihties 12,989.608 9.214.686 Total restricted assets 8.474.78I 8,186.588 Other liabilities-CURRENT ASSETS:

Decommissioning liabihty I,714.265 1,384.226 Cash and cash equivalents 9,767,980 3.240.493 Arbitrage rebate payable 446,238 283.828 National Rural Utihties Cooperative Finance Corp patronage WolfCreek NuclearOperating Corp. liabilities 2,142.087 964310 capital certificate 51,740 4.292 Accounts receivabic from members 5,850,733 5.807,523 Total other liabilities 4J02,590 2,632,364 Materials and supplies inventory 2,150,114 2.023,214 Other assets and prepaid expenses 480.627 462,769 COMMITMENTS ANDCONTINGENCIE3 Total current assets 18,301.214 11.538,291 OTilER LONG-TERM ASSETS Deferred charges, less accumulated amortization of $4,765,714 and 54.079.857 at December 31,1993 and 1992, respectively 25,143,793 24.910.243 Deferred incremental outage costs 1,019,668 383,199 Unamortired bond issue cost 1.162.801 1.224315 Wolf Creek Nuclear Operating Corp investments, at cost 1,627,853 1,281,530 1

1 Total other long-term assets 28,954.115 27.799.287 l

l TOTAL ASSETS

$ 237 978.691 5 232.681.835 TOTAL CAPITALIZATION AND LIABILITIES

$ 237.978.691

$ 232.681.835 I

See notes to financial statements.

l 2-

KANSAS ELECTRIC POWER COOPERATIVE, INC.

STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,1993 AND 1992 1993 1992 OPERATING REVENUE:

Member

$69,118,520

$64,966,632 Nonmember 800,634 152,831 Total operating revenue 69,919,154 65,119,463 OPERATING EXPENSES:

Power purchased 31,146,947 32,227,238 Nuclear fuel 2,055,015 1,781,054 Nuclear plant operations 3,178,107 3,343,035 Nuclear plant maintenance 1,737,963 1,988,831 Nuclear plant administrative and general 5,035,637 4,763,824 Administrative and general 2,205.212 2,285,447 Amortization of deferred charges 685,857 616,414 9

Depreciation 3,762,844 3,297,269 Total operating expenses 49,807,582 50,303,112 Operating margin 20,111,572 14,816,351 INTEREST INCOME 606,593 632,815 income before interest expense 20,718,165 15,449,166 INTEREST EXPENSE ON LONG-TERM DEBT 17,304,625 17,751,838 Net margin (loss)

$ 3,413.540

$ (2,302,672)

See notes to financial statements.

KANSAS ELECTRIC POWER COOPERATIVE, INC.

STATEMENTS OF PATRONAGE CAPITAL (DEFICIT) AND OTHER EQUITIES YEARS ENDED DECEMBER 31,1993 AND 1992 Patronage Capital (Deficit)

Other Memberships Unallocated Equities Total Balance, January 1,1991

$2 900

$(12,557,706)

$5,499,631

$(7,055,175) 1992 net margin (loss)

(2,935,487) 632,815 (2,302,672)

Balance, December 31,1992 2,900 (l5,493,193) 6,132,446 (9,357,847) 1993 net margin 2,806,947 606,593 3,413,540 Balance, December 31,1993

$2,900

$(12,686,246)

$6,739,039

$(5,944,307)

See notes to financial statements. - _ _ _ _ _ _ _ _ _ _ _ _ _ - _ - _ _ - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

KANSAS ELECTRIC POWER COOPERATIVE, INC.

STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,1993 AND 1992

(

1993 1992 CASH FLOWS FROM OPERATIONS:

Cash received from member sales

$69,319,804

$64,867,371 Cash received from nonmember sales 705,340 153,745 Cash paid for purchased power (31,341,538)

(32,093,193)

Cash paid for Wolf Creek operations (7,664,034)

(6,926,075)

Cash paid for KEPCo operations (2,128,892)

(2,309,943)

Interest paid (14,749,319)

(17,753,553)

Property taxes paid (2,724,225)

(2,161,509)

Interest received 716,194 709,201 Cash paid to decommissioning trust (266,336)

(297,250)

Miscellaneous cash received 2,364 5,353 Net cash from operations 11,869,358 4,194,147 CASH FLOWS FROM INVESTING ACTIVITIES:

Nuclear fuel purchases (672,514)

(2,037,189)

Plant additions (1,667,316)

(1,079,342)

Wolf Creek Nuclear Operating Corp. investments (181,750)

(239,224)

Net cash from investing activities (2,521,580)

(3,355,755)

CASH FLOWS FROM FINANCING ACTIVITIES-Repayment oflong-term debt (2,820,291)

(2,940,637)

INCREASE (DECREASE)lN CASH AND CASH EQUIVALENTS 6,527,487 (2,102,245)

CASH AND CASH EQUlVALENTS, BEGINNING OF YEAR 3,240,493 5,342,738 CASH AND CASH EQUIVAL.ENTS, END OF YEAR

$ 9,767,980 S 3,240,493 (Continued) 5-

KANSAS ELECTRIC POWER COOPERATIVE, INC.

STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,1993 AND 1992 i

1993 1992 RECONCILIATION OF NET INCOME TO NET CASil PROVIDED BY OPERATING ACTIVITIES:

Net margin (loss)

$ 3,413,540

$ (2,302,672)

Adjustments to reconcile net margin (loss) to net cash from operating activities:

Depreciation 3,762,844 3,297,269 Amortization of nuclear fuel 1,512,726 1,358,088 Amortization of deferred charges 685,857 616,414 Amortization of deferred incremental outage costs 1,657,783 2,390,667 Amortization of bond issue costs 61,514 61,800 Accretion of discount / amortization of premium (2,255)

(2,255)

Loss on sales of assets 3,645 22,021 (Increase)in restricted cash and short-term investments (5,098)

(6,525)

(Increase) decrease in investments in associated organizations 49,199 (211)

(Increase) in Wolf Creek Nuclear Operating Corp. investments (164,573)

(64,518)

(Increase) in decommissioning fund assets (330,039)

(347,978)

Increase in decommissioning liability 330,039 347,978 (Increase) in deferred charges (919,407)

(Increase) in deferred incremental outage expense (2,294,252)

(369,083)

Increase in arbitrage payable 162,410 157,848 increase in Wolf Creek Nuclear Operating Corp. liabilities 1,177,777 345,249 Other (30,297)

Net change in current assets and liabilities:

National Rural Utilities Cooperative Finance Corp. patronage capital certificate (47,448) 4,185 Accounts receivable (43,210)

(302,077)

Materials and supplies inventory (126,920)

(155,521)

Other assets and prepaid expenses (17,858)

(109,010)

Accounts payable 443,400 (1,159,619)

Payroll and payroll related liabilities 6,144 6,091 Accrued property taxes 90,048 469,520 Accrued interest payable 2,493,789 (63,514)

Total adjustments 8,455,818 6.496,819 Total cash from operations

$ 11,869,358

$ 4,194,147 See notes to financial statements.

(Concluded)..

KANSAS ELECTRIC POWER COOPERATIVE, INC.

Notes to Financial Statements Years Ended December 31,1993 and 1992 1.

DEPARTURES FROM GENERALLY ACCEPTED ACCOUNTING PRIh'CIPLES Effective February 1,1987, the Kansas Corporation Commission (KCC) issued an order to Kansas Electric Power Cooperative, Inc. (KEPCo) requiring the use of present worth (sinking fund) depreciation and amortization. As more fully described in Notes 3 and 6, such depreciation and amortization practices constitute phase-in plans which do not meet the requirements of Statement of Financial Accounting Standards (SFAS) No. 92, Accountingfor Phase-In Plans. The effect of these departures on the financial statements is as follows:

Overstated (Understated) 1993 1992 Net utility plant

$29,477,355

$25,680,852 Deferred charges 3,957,272 3,491,993 Deficit in patronage capital (deficit)

(33,434,627)

(29,172,845)

Net loss (4,261,782)

(4,411,299)

W 2.

SUMMARY

OF SIGNIFli (NT ACCOUNTING POLICIES System ofAccounts - KEPCo maintains its accounting records substantially in accordance with the Rural Electrification Administration (REA) Uniform System of Accounts and in accordance with accounting practices prescribed b / the KCC.

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

Through January 31,1987, the provision for depreciation for electric plant in service was computed on the straight-line method at a 3.44% annual composite rate. Effective February 1,1987, in accordance with an order issued by the KCC, the provision for depreciation is computed on a present worth (sinking fund) method which provides for increasing annual provisions over 27.736 years. The composite rates for the years ended December 31,1993 and 1992 were 1.970% and 1.719%,

respectively. Pursuant to a KCC rate order dated March 27,1992, beginning January 1,1992, all additions, betterments and improvements are depreciated on a straight-line basis over 30 years. The provision for depreciation, computed on a straight-line basis, of other components of utility plant are as follows:

Transportation and equipment 25 to 33%

Office furniture and fixtures 10 to 20%

Leasehold improvements 20 %

Transmission equipment 10 %

7

Nuclear Fuel. The cost of nuclear fuel in process of refinement, conversion, enrichment and fabrication is recorded as an asset at original cost and is amortized to nuclear fuel expense based upon the quantity of heat produced for the generation of electric power. The pennanent disposal of spent fuel is the responsibility of the Department of Energy (DOE). KEPCo pays one mill per net kwh of nuclear generation to the DOE for the future disposal service. These disposal costs are charged to nuclear fuel expense.

Investments in Associated Organizations - Investments in associated organizations are carried at cost and consist pcincipally of patronage capital certi0 cates, capital term certificates and subordinated term certificates of the National Rural Utilities Cooperative Finance Corp. (CFC). CFC patronage capital certificates maturing within one year of the balance sheet date are reDected as a current asset.

Cash Equivalents - All highly liquid investments purchased with maturities of three months or less are considered to be cash equivalents and are stated at cost which approximates market.

Materials andSupplies Inventory - Materials and supplies inventory for the Wolf Creek Generating Station (Wolf Creek) is stated at cost determined by the average cost method.

Unamorti:cd Bond Issue Costs - Unamortized bond issue costs related to the issuance of the Coating / fixed rate pollution control revenue bonds and mortgage notes payable to the CFC are being amortized using the interest method over the remaining life of the bonds.

Decommissioning Fund Assets / Decommissioning Liability - At December 31,1993 and 1992,

$1,714,265 and $1,384,226, respectively, has been collected and is being retained in an interest-bearing trust fund to be used for the physical decommissioning of Wolf Creek. The decommissioning funds have been invested by the trustee primarily in United States Treasury obligations and are carried at cost. During 1989, the KCC extended the estimated useful life of the Wolf Creek Generating Station to 40 years from the original estimate of 30 years only for the determination of decommissioning costs. Additionally, the estimated cost of decommissioning Wolf Creek was increased to $206 million in 1988 dollars. KEPCo is responsible for a 6% share of the decommissioning costs for Wolf Creek. These costs are being recovered and charged to operations over the life of the plant. On September 1,1993, Wolf Creek Nuclear Operating Corporation (WCNOC) filed an application, on behalf of its owners, with the KCC for an order approving a 1993 Wolf Creek Decommissioning Cost Study w hich estimates the total cost to be $370 million in 1993 dollars. If approved by the KCC, management expects such increases in cost to be recovered through the ratemaking process.

Cash Surrender Value ofLife Insurance Contracts - The following amounts related to WCNOC corporate-owned life insurance contracts, primarily with one highly-rated major insurance company are recorded on the balance sheets in WCNOC investments:

1993 1992 Cash surrender value of contracts

$ 1,296,765

$ 1,066,439 Borrowings against contracts 358,587 358,587 Net

$ 938,178

$ 707,852 Income Taxes - As a tax-exempt cooperative, KEPCo is exempt from income taxes under Section 501(c)(12) of the Internal Revenue Code of 1986 as amended. Based on its review in 1993, it is management's opinion that KEPCo has met the requirements of this section and will continue to do so for the foreseeable future. Accordingly, provisions for income taxes have not been reflected in the accompanying financial statements.

Patronage Capital (Deficit) and Other Equities - Operating margin, net ofinterest expense, is credited or charged to patronage capital (deficit) unallocated. Nonoperating margin (interest income) is credited to other equities; however, upon an affirmative vote of the membership, margins may be allocated to patronage capital unallocated.

Rates - The KCC has authority to establish KEPCo's electric rates subject to the times interest earned ratio and debt service coverage set forth by the REA.

KEPCo believes it is probable that future rates, as established by the KCC, will allow the recovery of deferred charges (see Note 6). If subsequent recovery is not permitted, the unrecovered deferred balances would be charged to expense at that time.

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

Reclassifications - KEPCo has reclassified the presentation of certain prior year information to conforrn with the current presentation.

c 3.

WOLF CREEK GENERATING STATION KEPCo owns 6% of the Wolf Creek Generating Station near Burlington, Kansas. The remainder is owned by the Kansas City Power & Light Company (KCPL - 47%) and Kansas Gas & Electric Company (KGE - 47%). KGE is a wholly owned subsidiary of Western Resources, Inc.

Substantially all of KEPCo's utility plant represents its share of the Wolf Creek Generating Station.

KEPCo is entitled to a proportionate share of the capacity and energy from Wolf Creek which is used to supply a portion of KEPCo's members' requirements. KEPCo is billed for 6% of the operations, maintenance and administrative and general costs related to Wolf Creek. All operations are accounted for in the same manner as would be a wholly owned facility.

The KCC declared Wolf Creek commercially operable on September 3,1985. KEPCo's total investment includes interest and administrative costs during construction.

Effective February 1,1957, the KCC issued an order to KEPCo to utilize a present worth (sinking fund) depreciation method which does not conform with generally accepted accounting principles and which constitutes a phase-in plan which does not meet the requirements of SFAS No. 92. If depreciation on electric plant in service was calculated using a method in accordance with generally accepted accounting principles, depreciation expense would be increased and KEPCo's operating margin would be decreased by $3,796,503 and $3,893,102 for the years ended December 31,1993 and 1992, respectively. In addition, net utility plant would be decreased and the deficit in patronage capital (deficit) unallocated would be increased by $29,477,355 and $25,680,852 at December 31, 1993 and 1992, respectively. t

4.

INVESTMENTS 1

KEPCo's portfolio, which is included in the balance sheet at cost as cash and cash equivalents (including restricted assets), is invested in Exed-income securities and is composed of the following securities at December 31:

1993 1992 Deposits at federally insured banks 65,486 6,056 United States Government agency obligations 2,994,295 Collatemlized repurchase agreements 6,417,450 450,000 CFC - Commercial paper 3,500,000 KEPCo has entered into a bond covenant whereby the Cooperative is required to maintain, with a trustee, a Bond Fund Reserve of a stipulated amount of approximately $3.9 million, sufficient to satisfy certain future interest and principal obligations. The amount held in the Bond Fund Reserve is invested by the trustee in various municipal securities, pursuant to the restrictions of the indenture agreement, which are carried at cost.

5.

INVESTMENTS IN ASSOCIATED ORGANIZATIONS At December 31,1993 and 1992, investments in associated organizations consisted of the following:

1993 1992 CFC:

Mcmbership 1,000 1,000 Capital term certificates 395,970 395,970 Subordinated term certificates 2,205,000 2,205,000 Patronage capital certificates 5,067 56,526 Other 12,691 10,431

$2,619,728

$2,668,927 6.

DEFERRED CHARGES Disallowed Costs - Effective October 1,1985, the KCC issued a rate order relating to KEPCo's investment in Wolf Creek which disallowed approximately $22.9 million of KEPCo's investment in Wolf Creek. A subsequent rate order, effective February 1,1987, allows KEPCo to recover these disallowed costs and other costs related to the disallowed portion for the period from September 3, 1985 through January 31,1987, over a 27.736 year period starting February 1,1987. KEPCo is using present worth (sinking fund) amortization to recover the disallowed costs which enables it to meet the times interest earned ratio and debt service requirements in the KCC rate order dated January 30, 1987. The method used by KEPCo constitutes a phase-in plan which does not meet the requirements of SFAS No. 92. If amortization to recover the disallowed costs was calculated using a method in accordance with generally accepted accounting principles, amortization of deferred charges would be

. increased and KEPCo's operating margin would be decreased by $465,279 and $518,197 for the years j

ended December 31,1993 and 1992, respectively. In addition, deferred charges would be decreased

(

and the deficit in patronage capital (deficit) unallocated would be increased by $3,957,272 and

$3,491,993 at December 31,1993 and 1992, respectively.

Revenue and Erpensesfor the Periodfrom September 3,1985 through September 30,1985 -

Although the Wolf Creek Generating Station 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 deferred charges. The KCC issued an order on February 1,1987 which allowed KEPCo to recover these costs over a ten year period. Annual amortization of such costs increases over the recovery period.

Decommissioning and Decontamination Assessments - The Energy and Policy Act of 1992 established a fund to pay for the decontamination and decommissioning of nuclear enrichment facilities operated by the DOE. A portion of this fund not to exceed $2.25 billion is to be collected from utilities that have purchased enrichment services from the DOE. This portion is limited to no more than $150 million each year and will be in the form of annual assessments that will not be imposed for more than 15 years. KEPCo has recorded its portion of this liability as approximately

$1,019,000 which is being paid over 15 years. KEPCo has recorded a related deferred asset which is being amortized to nuclear fuel expense over the 15 year assessment period. Management expects to include these assessments in its next rate case to be filed with the KCC and believes it is reasonable to expect approval for recovery of these assessments.

Deferred Incremental Outage Costs - On April 9,1991, the KCC issued an order that albwed KEPCo to defer its 6% share of the incremental maintenance and replacement power costs associated with refueling of the Wolf Creek Generating Station. Such deferred costs are being amortized over the operating cycle coincident with the recognition of the related revenues.

7.

LONG-TERM DEBT r

Long-term debt consists e mortgage notes payable to the United States of America acting through the Federal Financing Bank (FFB), the CFC and others. Substantially all of KEPCo's assets are pledged as collateral. The terms of the notes as of December 31 are as follows:

1993 1992 Mortgage notes payable to the FFB at rates varymg from 5.674% to 9.366%, payable in quarterly installments through 2018.

$ 128,747,364

$ 130,317,007 Mongage notes payable to the CFC at a rate of 10.028%

through December 1997 and 9.83% thereafter, payable semi-annually, principal payments commencing m 2003 and continuing annually through 2017.

51,340,000 51,340,000 Mortgage notes payable to the CFC at a rate of 9.5274%

through December 1997 and 9.33% thereafter, payable semi-annually, principal payments commencing m 1989 and continuing annually through 2002.

9,518,842 10,169,490 Floating / fixed rate polluiion control revenue bonds, City of Burlington, Kansas, Pooled Series 1985C, variable interest rate (2.53% at December 31,1993) payable annually through 2015.

41,100,000 41,700,000 230,706,206 233,526,497 Less current portion 4,075,406 3,333,865

$226,630,800

$230,192,632 Aggregate maturities of mortgage notes payable to the Federal Financing Bank and National Rural Utilities Cooperative Finance Corporation and floating / fixed rate pollution control revenue bonds as of December 31,1993 are as follows:

Year Amount 1994

$ 4,075,406 1995 3,905,814 1996 4,335,251 1997 4,626,121 1998 4,823,796 Thereafter to 2018 208,939,818

$230,706,206 At December 31,1993, KEPCo has FFB approved loans guaranteed by REA with balances of

$12S? P.364. Of this amount, $4,985,973 currently has a maturity date of March 31,1994. Upon mr of each short-term advance, KEPCo may renew the advance for another two year period or elect to atend the maturity date on a long-term basis. The above schedule oflong-term debt maturities assumes that the $4,985,973, which matures on March 31,1994, will be extended based on the above options.

In addition, restrictive covenants require KEPCo to design rates that would enable it to maintain a times interest earned ratio and debt service coverage of at least one-to-one in at least two out of every three years.

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

8.

SilORT-TERM BORROWINGS

]

KEPCo has available a $12 million line of credit with the CFC which remained unused at December 31,1993.

9.

OPERATING LEASE 1

KEPCo leases office space under a noncanceliable operating lease expiring on December 31,1996.

The minimum lease payments can be increased to the extent that taxes and insurance paid by the lessor exceed 1987 levels. - - _ _ - __- ____ - _ _ _ __-.

t

,o Future minimum lease payments for office space and equipment leased at December 31,1993 are as follows:

l Year Amount l

1994

$ 85,872 1995 80,835 1996 73.932 l

$240,639 The related rental expense for 1993 and 1992 was $81,489 and $99,138, respectively.

l l

10.

BENEFIT PLANS National Rural Electric Cooperative Association (NRECA) Retirement and Security Program -

KEPCo participates in the NRECA retirement and security program for its employees. All employees of members of NRECA are eligible to participate in the program. A moratorium on l

contributions was in effect for the period July 1,1987 through December 31,1993 due to reaching l

the full funding limitation. In the master multiemployer plan which is available to all members of NRECA, the accumulated benefits and plan assets are not determined or allocated by individual employee. KEPCo has no pension expense for the plan for the years ended December 31,1993 and 1992.

Substantially all employees of KEPCo also participate in the NRECA Savings Plan 401(k) option.

Under the plan, KEPCo contributes amounts not to exceed 3%, delsendent on the employee's level of participation, of the respective employee's base pay to provide additional retirement benefits.

KEPCo contributed approximately $30,595 and $29,537 to the plan in 1993 and 1992, respectively.

Wolf Creek Nuclear Operating Corporation Retirement Plan - KEPCo has an obligation to the WCNOC Retirement Plan for its 6% ownership interest in the Wolf Creek Generating Station. This plan provides for benefits upon retirement, normally at age 65. In accordance with the Employee Retirement income Security Act of 1974 (E;tlSA), KEPCo has satisfied at least its minimum funding requirements. Benefits under this plan reflect the employee's compensation, years of service and age at retirement.

Provisions for pensions are determined under the rules prescribed by SFAS No. 87. The following sets forth KEPCo's share of the plan's actuarial present value and funded status at November 30,1993 and 1992 (the plan years) and a reconciliation of such status to the financial statements as of December 31:

1993 1992 Accumulated benefit obligation:

Vested

$ 423,782

$ 266,846 Nonvested 178.577 128,539 Total

$ 602,359

$ 395,385 Fair value of plan assets

$ 739,335

$ 569,765 Projected benefit obligation 1,492,578 1,191,226 Projected benefit obligation in excess of plan assets (753,243)

(621,461)

Unamortized transition ameunt 130,636 137,894 Unrecognized net gain 3,745 (38,018)

Unrecognized prior senrice cost 58,688 62,045 Accrued pension liability

$ 560,174

$ 459,540 Plan assets are invested in insurance contracts, corporate bonds, equity securities, U.S. Government securities and short-term investments.

Actuarial assumptions:

1993 1992 Discount rate 7%

8%

Annual salary increase rate 5%

6%

Long-term rate of return 8%

8%

KEPCo's share of the net periodic pension costs were as follows for the years ended December 31:

1993 1992 Service co:t

$ 162,180

$ 154,471 Interest cost on projected benefit obligation 103,453 88,309 Actual return on plan assets (48,439)

(64,387)

Other 8,972 36,311 Total pension expense

$226,166

$214,704 l

l.

11.

CONTINGENCIES Litigation - There is a provision in the Wolf Creek operating agreement whereby the owners treat certain claims and losses arising out of the operation of the Wolf Creek Generating Station as a cost to be born by the owners separately (but notjointly) in proportion to their ownership shares. Each of the owners has agreed to indemnify the others in such cases.

As is the case with other electric utilities, KEPCo, from time to time, is subject to various actions which occasionally incluae punitive damage claims. KEPCo maintains insurance providing liability coverage; however, the insurance companies generally reserve the right to challenge insurance coverage for punitive damage recoveries. In the opinion of the general counsel of KEPCo, there is not a significant probability that, as a result of pending or threatened personal injury actions, KEPCo will be liable for payment of actual or punitive damages in an amount material to the financial position of KEPCo.

Nuclear Liabilly andInsurance - The Price-Anderson Act and its amendments currently limit the public liability, including attorney costs, of nuclear reactor owners for claims that could arise from a nuclear incident to $9.4 billion. The Wolf Creek owners (Owners) have liability insurance coverage of this amount which consists of the maximum available private insurance of $200 million and the balance is provided by an assessment plan mandated by the Nuclear Regulatory Commission. Under this plan, the Owners arejointly and severally subject to a retrospective assessment of up to $79.28 million ($4.76 million - KEPCo's share), in the event there is a nuclear incident involving any of the nation's licensed reactors. This assessment is subject to an inflation adjustment based on the Consumer Price Index. There is a limitation of $10 million ($600,000 - KEPCo's share) in retrospective assessments per incident per year.

The owners of Wolf Creek also have property damage, decontamination and decommissioning insurance for loss resulting from damage to the Wolf Creek facilities in the amount of $2.8 billion

($168 million - KEPCo's share). Nuclear insurance pools provide $1.3 billion of coverage. Nuclear Electric Insurance Limited (NEIL) provides $1.5 billion. In the event of an accident, insurance proceeds must first be used for reactor stabilization and site decontamination. The remaining proceeds from the $2.8 billion insurance coverage ($168 million - KEPCo's share), if any, can be i

used for propeny damage up to $140 million (KEPCo's share) and premature decommissioning costs up to $15 million (KEPCo's share) in excess of funds previously collected for decommissioning.

The owners of Wolf Creek have also procured extra expense insurance from NEIL. Under both the NEIL property and extra expense policies, the Company is subject to retroactive assessment if NEIL losses, with respect to each policy year, exceed the accumulated funds available to the insurer under that policy. The estimated maximum retroactive assessments for KEPCo's share under the policies total approximately $1,149,000 per year.

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

Nuclear Fuel Commitments - At December 31,1993, Wolf Creek's nuclear fuel commitments (KEPCo's share) were approximately $2.3 million for uranium concentrates through 1997, $15.8 million for enrichment through 2014 and $5.8 million for fabrication through 2012.

~

I

,i 1

i 9

1 REA Development - KEPCo has recexed notification from the REA that, because KEPCo's financial statements are not in conformance with generally accepted accouns.ng principles, as discussed in Note 1, the REA will evaluate all requests for action on the basis of financial information prepared as if the straight-line niethod of depreciation and amortization had been used.

12.

FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of eaca e. ss of financial instruments for which it is practicable ta estimate that value as set fonh in SFAS No.107:

,j Cash and Cas/t Equiraients - The carrying amount approximates the fair value because of the short-term maturity of those inveutments.

Decommissioning Trust, Investments in Associated Organi:ations and Bond Fund Reserve - The fair value of these assets is based on quoted market prices at December 31,1993.

Variable-rate Debt - The carrying amoum approximates the fair value because of the short-term variable rates of those debt instruments.

Fived-rate Debt-The fair value of the fixed-rate debt is based on t e sum of the estimated value of h

each issue, taking into consideration the current rates offered to KEt>Co for debt of the same remaining maturities.

The estimated fair values of the Company's financial instruments are a follows:

December 31,1993 f

Carrying Value Fair Value Cash and cash equivalents (including restricted assets)

$ 9,982,936

$ 9,982,936 Investments in associated organizations (including restricted assets) 2,671,468 3,303,250 Bond fund reserve 3,925,832 5,041,906 Decommisisioning trust 1,714,265 1,711,851 Variable-rate debt 41,100,000 41,100,000 Fixed-rate debt 189,606,206 208,683,833 13.

OTIIER MATTERS On March 27,1992, the KCC issued a rate order increasing KEPCo's energy rate by 2.5 mills per kwh effective April 1,1992.

On December 31,1992, the KCC issued a rate order allowing KEPCo to collect $859,000 per year through an increase of.66 mills per kwh in KEPCo's energy rates effective January 1,1993. The increase allows KEPCo to recover additional property taxes resulting from legislation passed during the 1992 Kansas legislative session.

On January 12,1994, KEPCo refinanced $10.3 million of mortgage notes payable to the Federal Financing Bank. The new interest ra;e is 6.107% compared to the old rate of 9.366% and is projected to save KEPCo $4.7 million over the life of the notes.

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. _,_ ~.-_.

.