FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut Street
Kansas City, Missouri 64106
(Address of principal executive offices)
Registrant's telephone number, including area code: 816-556-2200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------------ -----------------------
Cumulative Preferred Stock New York Stock Exchange
par value $100 per share -
3.80%, 4.50%, 4.35%
Common Stock without par value New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
On March 12, 1999, KCPL had 61,898,020 shares of common stock
outstanding. The aggregate market value of the common stock held
by nonaffiliates of KCPL (based upon the closing price of the
Company's common stock on the New York Stock Exchange on
March 12, 1999) was approximately $1,553,853,220.
Documents Incorporated by Reference
Portions of the 1999 Proxy Statement are incorporated by
reference in Part III of this report.
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TABLE OF CONTENTS
Page
Number
Item 1. Business 1
Proposed Merger With Western Resources, Inc. 1
Regulation 1
Rates 1
Missouri 2
Kansas 2
Environmental 2
Air 2
Water 3
Competition 4
Fuel Supply 4
Coal 4
Nuclear 4
High-Level Waste 5
Low-Level Waste 5
Employees 5
Subsidiaries 6
Officers of the Registrant 7
Item 2. Properties 8
Generation Resources 8
Transmission and Distribution Resources 9
General 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 10
Market Information 10
Holders 10
Dividends 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Consolidated Financial Statements 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 48
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners
and Management 48
Item 13. Certain Relationships and Related Transactions 48
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 49
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CERTAIN FORWARD-LOOKING INFORMATION
Statements made in this Form 10-K which are not based on
historical facts are forward-looking and, accordingly,
involve risks and uncertainties that could cause actual
results to differ materially from those discussed. Any
forward-looking statements are intended to be as of the date
on which such statement is made. In connection with the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, we are providing a number of important
factors that could cause actual results to differ materially
from provided forward-looking information. These important
factors include:
- - the proposed Western Resources Inc. merger
- - future economic conditions in the regional, national
and international markets
- - state, federal and foreign regulation and possible
additional reductions in regulated electric rates
- - weather conditions
- - financial market conditions, including, but not limited
to changes in interest rates
- - inflation rates
- - increased competition, including, but not limited to,
the deregulation of the United States electric utility
industry, and the entry of new competitors
- - ability to carry out marketing and sales plans
- - ability to achieve generation planning goals and the
occurrence of unplanned generation outages
- - nuclear operations
- - ability to enter new markets successfully and
capitalize on growth opportunities in nonregulated
businesses
- - unforeseen events that would prevent correcting
internal or external information systems for Year 2000
problems
- - adverse changes in applicable laws, regulations or
rules governing environmental (including air quality
regulations), tax or accounting matters
This list of factors may not be all-inclusive since it is
not possible for us to predict all possible factors.
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PART I
ITEM 1. BUSINESS
Kansas City Power & Light Company (KCPL) was incorporated in
Missouri in 1922 and is headquartered in downtown Kansas City,
Missouri. KCPL is a medium-sized public utility engaged in the
generation, transmission, distribution and sale of electricity to
over 451,000 customers at year-end in a 4,700 square mile area
located in all or portions of 31 counties in western Missouri and
eastern Kansas. About two-thirds of KCPL's retail sales are to
Missouri customers and the remainder to Kansas customers.
Customers include approximately 396,000 residences, 52,000
commercial firms, and 3,000 industrials, municipalities and other
electric utilities. Retail revenues in Missouri and Kansas
accounted for approximately 91% of KCPL's total utility revenues
in 1998. Wholesale firm power, bulk power sales and
miscellaneous electric revenues accounted for the remainder of
utility revenues. Low fuel costs and superior plant performance
enable KCPL to serve its customers well while maintaining a
leadership position in the bulk power market.
KLT Inc., a wholly-owned, nonutility subsidiary of KCPL formed in
1992, pursues nonregulated business ventures. Existing ventures
include investments in energy services, oil and gas development
and production, telecommunications and affordable housing limited
partnerships. Home Service Solutions Inc. (HSS), a wholly-owned,
nonutility subsidiary of KCPL formed in 1998, holds interests in
companies providing products and services solutions to
residential customers. (See "Subsidiaries" on page 6 of this
report.) Approximately 3.7% of KCPL's consolidated net income
came from the subsidiaries in 1998.
Proposed Merger With Western Resources, Inc.
On March 18, 1998, KCPL and Western Resources, Inc. (Western
Resources) entered into an Amended and Restated Agreement and
Plan of Merger (Amended Agreement). This Amended Agreement
provides for the combination of the regulated electric utilities
of KCPL and Western Resources into Westar Energy, a new company.
(See Note 12 to Consolidated Financial Statements, "Amended and
Restated Plan of Merger with Western Resources", on page 44.)
Regulation
KCPL is subject to the jurisdiction of the Public Service
Commission of the State of Missouri (MPSC), the State Corporation
Commission of the State of Kansas (KCC), the Federal Energy
Regulatory Commission (FERC), the Nuclear Regulatory Commission
(NRC) and certain other governmental regulatory bodies as to
various phases of its operations, including rates, service,
safety and nuclear plant operations, environmental matters and
issuances of securities.
Rates
The MPSC and KCC regulate KCPL's retail electric rates for sales
within the respective states of Missouri and Kansas. FERC
approves KCPL's rates for wholesale bulk electricity sales. Firm
electric sales are made by contractual arrangements between the
entity being served and KCPL.
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Missouri
Pursuant to a stipulation and agreement with the MPSC, KCPL
reduced Missouri retail rates by about 2.7% effective January 1,
1994, 2% effective July 9, 1996, and by about 2.5% effective
January 1, 1997. On January 26, 1999, KCPL, Staff of the MPSC
and the Office of Public Counsel filed a Stipulation and
Agreement with the MPSC providing for a proposed rate reduction
of 3.2% beginning March 1, 1999. This Stipulation and Agreement
is subject to MPSC approval.
Kansas
Pursuant to a rate settlement and agreement with the KCC, KCPL
implemented a 4.7% reduction in Kansas retail rates which was
effective January 1, 1998, and implemented March 1, 1999. The
amount accrued between January 1, 1998, and the implementation
date was refunded.
Environmental
KCPL's operations must comply with federal, state and local
environmental laws and regulations. The generation and
transmission of electricity produces and requires disposal of
certain products and by-products, including polychlorinated
biphenyl (PCBs), asbestos and other potentially hazardous
materials. The Federal Comprehensive Environmental Response,
Compensation and Liability Act (the Superfund law) imposes strict
joint and several liability for those who generate, transport or
deposit hazardous waste. This liability extends to the current
property owner as well as prior owners since the time of
contamination.
We continually conduct environmental audits designed to detect
contamination and ensure compliance with governmental
regulations. However, compliance programs needed to meet new and
future environmental laws and regulations governing water and air
quality, including carbon dioxide emissions, nitrogen oxide
emissions, hazardous waste handling and disposal, toxic
substances and the effects of electromagnetic fields, could
require substantial changes to operations or facilities. We
cannot presently estimate any additional costs of meeting such
new regulations or standards which might be established in the
future or the possible effect which any new regulations or
standards could have on KCPL's operations. However, we currently
estimate that expenditures necessary to comply with environmental
regulations will not be material with the possible exceptions set
forth below.
Air
Air Particulate Matter
In July 1997 the United States Environmental Protection Agency
(EPA) published new air quality standards for particulate matter.
Additional regulations implementing these new particulate
standards have not been finalized. Without the implementation
regulations, the real impact of the standards on KCPL cannot be
determined. However, the impact on KCPL and other utilities that
use fossil fuels could be substantial. Under the new fine
particulate regulations the EPA is in the process of implementing
a three-year study of fine particulate emissions. Until this
testing and review period has been completed, KCPL cannot
determine additional compliance costs, if any, associated with
the new particulate regulations.
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Nitrogen Oxide
In 1997 the EPA also issued new proposed regulations on reducing
nitrogen oxide (NOx) emissions. The EPA announced in 1998 final
regulations implementing reductions in NOx emissions. These
regulations require 22 states, including Missouri, to submit
plans for controlling NOx emissions by September 1999. The
regulations require a significant reduction in NOx emissions from
1990 levels at KCPL's Missouri coal-fired plants by the year
2003. To achieve these reductions, KCPL would need to incur
significantly higher capital costs or purchase power or NOx
emissions allowances. It is possible that purchased power or
emissions allowances may be too costly or unavailable.
Preliminary analysis of the regulations indicate that selective
catalytic reduction technology will be required for some of the
KCPL units, as well as other changes. Currently, we estimate
that additional capital expenditures to comply with these
regulations could range from $90 to $150 million over the period
from 1999 to 2002. Operations and maintenance expenses could
also increase by more than $10 million per year, beginning in
2003. We continue to refine these preliminary estimates and
explore alternatives to comply with these new regulations to
minimize, to the extent possible, KCPL's capital costs and
operating expenses. The ultimate cost of these regulations could
be significantly different than the amounts estimated above.
KCPL and several other western Missouri utilities filed suit
against the EPA over the inclusion of western Missouri in the NOx
reduction program. This matter is in the early stage of
litigation and the outcome cannot be predicted at this time.
Carbon Dioxide
At a December 1997 meeting in Kyoto, Japan, the Clinton
Administration supported changes to the International Global
Climate Change treaty which would require a seven percent
reduction in United States carbon dioxide (CO2) emissions below
1990 levels. President Clinton stated that this change in the
treaty would not be submitted to the U.S. Senate at this time
where ratification is uncertain. If future reductions of
electric utility CO2 emissions are eventually required, the
financial impact upon KCPL could be substantial.
Water
KCPL commissioned an environmental assessment of its Northeast
Station and of its Spill Prevention Control and Countermeasure
plan as required by the Clean Water Act. The assessment revealed
contamination of the site by petroleum products, heavy metals,
volatile and semi-volatile organic compounds, asbestos,
pesticides and other regulated substances. Based upon studies
and discussions with Burns & McDonnell, the cost of the cleanup
could range between $1.5 million and $6 million.
Also, groundwater analysis has indicated that certain volatile
organic compounds are moving through the Northeast site, just
above bedrock, from sources off-site. The Missouri Department of
Natural Resources (MDNR) was notified of the possible release of
petroleum products and the presence of volatile organic compounds
(VOCs) moving under the site. Monitoring and removal of free
petroleum products continues at the site. KCPL was advised that
MDNR located a source of the VOCs upgradient and unrelated to
KCPL. MDNR is working with that site owner to reduce the flow of
VOCs under Northeast Station.
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Competition
A number of states already have authorized retail electric
competition. Other states, including Kansas and Missouri, are
studying the issue. In Kansas, a taskforce established by the
Legislature concluded its two-year effort by proposing a
comprehensive retail competition bill in the 1998 legislative
session. That bill was not passed. Comprehensive retail
competition legislation again has been proposed in the 1999
legislative session. That legislation is not expected to pass
this year. In Missouri, a legislative interim committee has
spent two years studying retail electric competition. It is
expected that the committee will continue its efforts in 1999.
In addition, a task force established by the Missouri Public
Service Commission prepared a report in 1998 addressing
implementation issues relating to retail competition.
Comprehensive retail competition legislation is not expected to
pass the Missouri General Assembly this year. (See Item 7
"Regulation and Competition" on page 13 of this report.)
Fuel Supply
KCPL's principal sources of fuel for electric generation are coal
and nuclear fuel. These fuels are expected to satisfy about 95%
of the 1999 fuel requirements with the remainder provided by
other sources including natural gas, oil and steam. The 1998 and
estimated 1999 fuel mix, based on total Btu generation, are as
follows:
Estimated
1998 1999
---- ---------
Coal 69% 70%
Nuclear 29% 25%
Other 2% 5%
Coal
KCPL's average cost per million Btu of coal burned, excluding
fuel handling costs, was $0.81 in 1998, $0.85 in 1997, and $0.85
in 1996.
During 1999, approximately 10.4 million tons of coal (6.8 million
tons, KCPL's share) are projected to be burned at KCPL's
generating units, including jointly-owned units. This amount has
been reduced for 1999 due to the unavailability of Hawthorn 5.
(See Generation Resources, footnote (d), on page 8 of this
report.) KCPL has entered into coal-purchase contracts with
various suppliers in Wyoming's Powder River Basin, the nation's
principal supplier of low-sulfur coal. These contracts, with
expiration dates ranging from 1999 through 2003, will satisfy
approximately 90% of the projected coal requirements for 1999,
50% for 2000, and 20% thereafter.
Nuclear
KCPL also owns 47% of Wolf Creek Nuclear Operating Corporation
(WCNOC), the operating company for the Wolf Creek Generating
Station (Wolf Creek). WCNOC has on hand or under contract 100%
of the uranium needs for 1999 and 59% of the uranium required to
operate Wolf Creek through September 2003. The balance is
expected to be obtained through contract and spot market
purchases.
Contracts are in place for the conversion of uranium to uranium
hexaflouride sufficient for operation of Wolf Creek through 2001.
WCNOC has obtained or has under contract 100% of Wolf Creek's
uranium enrichment requirements for 1999 and 88% of the
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enrichment services required for operation of Wolf Creek through
March 2005. The balance is expected to be obtained through a
combination of contract and spot market purchases.
High-Level Waste
We amortize nuclear fuel to fuel expense based on the quantity of
heat produced during generation of electricity. Under the
Nuclear Waste Policy Act of 1982, the Department of Energy (DOE)
is responsible for the permanent disposal of spent nuclear fuel.
For this future disposal of spent nuclear fuel, KCPL pays the DOE
a quarterly fee of one-tenth of a cent for each kilowatt-hour of
net nuclear generation delivered and sold. These disposal costs
are charged to fuel expense.
A permanent disposal site may not be available for the industry
until 2010 or later, although an interim facility may be
available earlier. Under current DOE policy, once a permanent
site is available, the DOE will accept spent nuclear fuel first
from the owners with the oldest spent fuel. As a result,
disposal services for Wolf Creek may not be available before
2016. Wolf Creek has an on-site, temporary storage facility for
spent nuclear fuel. Under current regulatory guidelines, this
facility can provide storage space until about 2005. Wolf Creek
has started plans to increase its on-site storage capacity for
all spent fuel expected to be generated by Wolf Creek through the
end of its licensed life in 2025.
Low-Level Waste
The Low-Level Radioactive Waste Policy Amendments Act of 1985
mandated that the various states, individually or through
interstate compacts, develop alternative low-level radioactive
waste disposal facilities. The states of Kansas, Nebraska,
Arkansas, Louisiana and Oklahoma formed the Central Interstate
Low-Level Radioactive Waste Compact and selected a site in
northern Nebraska to locate a disposal facility. WCNOC and the
owners of the other five nuclear units in the compact provide
most of the pre-construction financing for this project. As of
December 31, 1998, KCPL's net investment for this project was
$7.3 million.
Significant opposition to the project has been raised by Nebraska
officials and residents in the area of the proposed facility, and
attempts have been made through litigation and proposed
legislation in Nebraska to slow down or stop development of the
facility. On December 18, 1998, the application for a license
to construct this project was denied. On January 15, 1999, a
request for a contested case hearing on the denial of the license
was filed. The contested case hearing must be granted. There is
a reasonable possibility that the contested case hearing will be
stayed for a significant period of time. If such a stay occurs,
a greater possibility of reversing the license denial will exist
when the contested case hearing ultimately is conducted.
Employees
At December 31, 1998, KCPL and its wholly-owned subsidiaries had
2,233 employees (including temporary and part-time employees), 1,389 of
which were represented by three local unions of the International
Brotherhood of Electrical Workers (IBEW). KCPL has labor agreements
with Local 1613, representing clerical employees (which expires March 31,
1999), with Local 1464, representing outdoor workers (which expires
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January 8, 2000), and with Local 412, representing power plant workers
(which expires February 28, 2001). KCPL is also a 47% owner of WCNOC,
which employs 999 persons to operate Wolf Creek.
Subsidiaries
KLT Inc. has five active wholly-owned direct subsidiaries:
- KLT Investments Inc., a passive investor in affordable
housing investments that generate tax credits.
- KLT Investments II Inc., a passive investor in economic and
community-development and energy-related projects.
- KLT Energy Services Inc., a participant in energy management
and lighting services businesses. Custom Energy, L.L.C., a
majority-owned subsidiary, provides energy management and
lighting services to commercial, industrial and governmental
customers. KLT Energy Services Inc. also has a 50%-owned
subsidiary, Custom Lighting Services, L.L.C., which provides
streetlight design, construction and maintenance services to
municipalities. KLT Energy Services Inc. is an investor in
Nationwide Electric, Inc., which is a consolidator of industrial
and commercial electrical contractors.
- KLT Gas Inc., a participant in oil and gas exploration,
development and production. KLT Gas Inc. has one wholly-owned
subsidiary, FAR Gas Acquisitions Corporation, which holds limited
partnerships in coal seam methane gas wells that generate tax
credits. KLT Gas Inc. also has a 95% ownership in Apache Canyon
Gas L.L.C., which has production from over 150 coal seam methane
wells and continues development of mineral rights in the vicinity
of Weston, Colorado.
- KLT Telecom Inc., an investor in communications and
information technology opportunities. KLT Telecom Inc. has one
majority-owned subsidiary, Telemetry Solutions, a provider of
spread spectrum storage tank monitoring services. KLT Telecom
Inc. is also an investor in Digital Teleport, Inc., a St. Louis,
Missouri, facility-based provider of long-haul and local
telecommunication services.
KCPL's equity investment in KLT Inc. at December 31, 1998, was $119 million.
Home Service Solutions Inc. made investments in two companies:
- Worry Free Service, Inc., a participant in electrical and
energy-related services to residential users (owned 100% by HSS).
- R. S. Andrews Enterprise, Inc., a consumer services company
in Atlanta, Georgia (HSS holds 43% ownership interest).
KCPL's current equity investment in HSS is approximately $24 million.
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Officers of the Registrant
Year
Named
Name Age Positions Currently Held Officer
- ------------------- --- ------------------------------------- -------
Drue Jennings 52 Chairman of the Board 1980
and Chief Executive Officer
Bernard J. Beaudoin 58 President 1984
Marcus Jackson 47 Executive Vice President - Chief 1989
Financial Officer
John J. DeStefano 49 Senior Vice President - Business 1989
Development
Jeanie Sell Latz 47 Senior Vice President - Corporate 1991
Services, Corporate Secretary
and Chief Legal Officer
Frank L. Branca 51 Vice President - Production 1989
Charles R. Cole 52 Vice President - Customer Services 1990
Douglas M. Morgan 56 Vice President - Information Technology 1994
Richard A. Spring 44 Vice President - Transmission and 1994
Environmental Services
Bailus M. Tate 52 Vice President - Human Resources 1994
Andrea F. Bielsker 40 Treasurer 1996
Neil A. Roadman 53 Controller 1980
All of the foregoing persons have been officers or employees in a
responsible position with KCPL for the past five years. The term
of office of each officer commences with his or her appointment
by the Board of Directors and ends at such time as the Board of
Directors may determine.
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ITEM 2. PROPERTIES
Generation Resources
KCPL's generating facilities consist of the following:
Estimated
1999
Year Megawatt (mw)
Unit Completed Capacity Fuel
---- --------- ------------- ----
Existing Units
Base Load...Wolf Creek(a) 1985 547(b) Nuclear
Iatan 1980 469(b) Coal
LaCygne 2 1977 337(b) Coal
LaCygne 1 1973 344(b) Coal
Hawthorn 6(c) 1997 141 Gas/Oil
Hawthorn 5(d) 1969 0 Coal/Gas
Montrose 3 1964 176 Coal
Montrose 2 1960 164 Coal
Montrose 1 1958 170 Coal
Peak Load...Northeast 13 and 14(c)* 1976 114 Oil
Northeast 17 and 18(c) 1977 117 Oil
Northeast 15 and 16(c) 1975 116 Oil
Northeast 11 and 12(c) 1972 111 Oil
Grand Avenue (2 units) 1929 & 1948 73 Gas
-----
Total 2,879
____________
(a) This unit is one of KCPL's principal generating facilities
and has the lowest fuel cost of any of its generating facilities.
An extended shutdown of the unit could have a substantial adverse
effect on the operations of KCPL and its financial condition.
(b) KCPL's share of jointly-owned unit.
(c) Combustion turbines.
(d) On February 17, 1999, an explosion occurred at the Hawthorn
Generating Station. Alternatives for the replacement of the
power generated at the Station are being evaluated. For 1999,
estimates of net increased expenses from the loss of generation
are between $6.5 million and $11.5 million. See Note 14 to
Consolidated Financial Statements, Subsequent Events, second
paragraph, page 46, and Item 7, fourth paragraph, on page 23.
KCPL owns the Hawthorn Station (Jackson County, Missouri),
Montrose Station (Henry County, Missouri), Northeast Station
(Jackson County, Missouri) and two Grand Avenue Station turbine
generators (Jackson County, Missouri). KCPL also owns 50% of the
688-mw LaCygne 1 Unit and 674-mw LaCygne 2 Unit in Linn County,
Kansas; 70% of the 670-mw Iatan Station in Platte County,
Missouri; and 47% of the 1,164 mw Wolf Creek in Coffey County,
Kansas.
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Transmission and Distribution Resources
KCPL's electric transmission system is interconnected with
systems of other utilities to permit bulk power transactions with
other electricity suppliers. KCPL owns approximately 1,700 miles
of transmission lines, approximately 8,900 miles of overhead
distribution lines, and approximately 3,200 miles of underground
distribution lines. KCPL has all franchises necessary to sell
electricity within the territories from which substantially all
of its gross operating revenue is derived.
General
KCPL's principal plants and properties, insofar as they
constitute real estate, are owned in fee; certain other
facilities are located on premises held under leases, permits or
easements; and its electric transmission and distribution systems
are for the most part located over or under highways, streets,
other public places or property owned by others for which
permits, grants, easements or licenses (deemed satisfactory but
without examination of underlying land titles) have been
obtained.
Substantially all of the fixed property and franchises of
KCPL, which consists principally of electric generating stations,
electric transmission and distribution lines and systems, and
buildings (subject to exceptions and reservations), are subject
to a General Mortgage Indenture and Deed of Trust dated as of
December 1, 1986.
ITEM 3. LEGAL PROCEEDINGS
Kansas City Power & Light Co. v. Western Resources, Inc., et. al
On May 20, 1996, KCPL commenced litigation in the United States
District Court for the Western District of Missouri, Western
Division (District Court), against Western Resources, Inc.
(Western Resources) and Robert L. Rives (Rives) requesting the
District Court to declare the Amended and Restated Agreement and
Plan of Merger between KCPL, KC Merger Sub, Inc., UtiliCorp and
KC United Corp., dated January 1996, amended May 20, 1996
(Amended Merger Agreement), and the transactions contemplated
thereby (collectively the Transaction) were legal. On May 24,
1996, Jack R. Manson (Manson), filed an action to become a party
to the above litigation as the shareholders' representative.
Manson made claims against KCPL and all its directors stating
they had violated their fiduciary duties; that their actions in
adopting the Amended Merger Agreement were illegal and ultra
vires; that the adoption of the Amended Merger Agreement
illegally deprived shareholders of rights under Missouri law; and
that the adoption of the Amended Merger Agreement was an
excessive response to Western Resources' acquisition offer.
The District Court on August 2, 1996, ruled the transactions
contemplated by the Amended Merger Agreement were legally valid
and authorized under Missouri law; but the combined transactions
resulted in a merger between KCPL and UtiliCorp requiring, under
Missouri law, approval by the holders of two-thirds of the
outstanding shares of KCPL's stock. By order dated November 25,
1996, the District Court allowed Manson to amend his counterclaim
claiming the directors breached their fiduciary duties by
refusing to meet with Western Resources and had committed
reckless, grossly negligent, or negligent waste of corporate
assets by pursuing the merger with UtiliCorp.
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On July 18, 1997, the District Court issued an Order dismissing
Manson's counterclaims. Manson then filed a motion to amend the
Order requesting the Court award his attorneys' fees in this
matter. The Court, in an Order dated July 6, 1998, awarded
approximately $500,000 in attorneys' fees to Manson. Both Manson
and KCPL appealed the award to the United States Court of Appeals
for the Eighth Circuit. Manson is seeking an award of over $6
million in attorneys' fees in the appeal which is still pending.
On March 8, 1999, the Court heard this appeal. The Company
believes it should prevail on Manson's claim for additional fees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders
through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
(1) Principal Market:
Common Stock of KCPL is listed on the New York Stock
Exchange and the Chicago Stock Exchange.
(2) Stock Price Information:
Common Stock Price Range ($)
-----------------------------------------
1997 1998
------------------ ------------------
Quarter High Low High Low
------- -------- ------- -------- -------
First 29-3/4 28 31-5/8 28-5/16
Second 29-1/8 27-3/8 31-1/2 28-1/16
Third 29-13/16 28-7/16 30-3/4 28
Fourth 29-15/16 27-3/8 31-13/16 28-3/8
Holders
At December 31, 1998, KCPL's Common Stock was held by 22,070
shareholders of record.
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Dividends
Common Stock dividends were declared as follows:
Quarter 1997 1998 1999
------- ------ -------- ------
First $0.405 $0.405 $0.415
Second 0.405 0.405
Third 0.405 0.415
Fourth 0.405 0.415
KCPL's Restated Articles of Consolidation contain certain
restrictions on the payment of dividends on KCPL's Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31
1998(a) 1997(a)(b)1996(a) 1995 1994(c)
(dollars in millions except per share amounts)
Operating revenues $ 939 $ 896 $ 904 $ 886 $ 868
Net income $ 121 $ 77 $ 108 $ 123 $ 105
Earnings per common
share $ 1.89 $ 1.18 $ 1.69 $ 1.92 $ 1.64
Total assets at
year end $3,012 $3,058 $2,915 $2,883 $2,770
Total mandatorily redeemable
preferred securities $ 150 $ 150 $ -- $ -- $ --
Total redeemable
preferred stock and
long-term debt
(including current
maturities) $ 913 $1,008 $ 971 $ 911 $ 833
Cash dividends per
common share $ 1.64 $ 1.62 $ 1.59 $ 1.54 $ 1.50
Ratio of earnings to
fixed charges 2.87 2.03 3.06 3.94 4.07
(a) KCPL incurred merger-related costs of $15 million in 1998, $7
million in 1997 and $31 million in 1996.
(b) KCPL paid $53 million to UtiliCorp United (UtiliCorp) in 1997 for
terminating the merger with UtiliCorp and agreeing to a merger with
Western Resources Inc. (Western Resources).
(c) KCPL incurred a $22.5 million expense in 1994 for a voluntary
early retirement program.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATUS OF MERGER
See Note 12 to the Consolidated Financial Statements for the current
status of the proposed Western Resources Inc. (Western Resources)
merger. In December 1996 the Federal Energy Regulatory Commission
(FERC) issued a statement concerning electric utility mergers. Under
the statement, companies must demonstrate that their merger does not
adversely affect competition or wholesale rates. As a result, FERC
may consider a number of remedies including transmission upgrades,
divestitures of generating assets or formation of independent system
operators.
REGULATION AND COMPETITION
As competition develops throughout the electric utility industry, we
are positioning Kansas City Power & Light Company (KCPL) to excel in
an open market. We are continuing to improve the efficiency of KCPL's
electric utility operations, lowering prices and offering new
services. In particular, KCPL's value-added services for large energy
users now include contracts for natural gas commodities.
Competition in the electric utility industry accelerated with the
passage of the National Energy Policy Act of 1992. This Act gave FERC
the authority to require electric utilities to provide transmission
line access to independent power producers (IPPs) and other utilities
(wholesale wheeling). In April 1996 FERC issued an order requiring
all owners of transmission facilities to adopt open-access tariffs and
participate in wholesale wheeling. We made the necessary filings to
comply with that order.
FERC's April 1996 order encouraged more movement toward retail
competition at the state level. An increasing number of states have
already adopted open access requirements for utilities' retail
electric service, allowing competing suppliers access to their retail
customers (retail wheeling). Many other states are actively
considering retail wheeling including Kansas and Missouri. While
retail wheeling legislation is likely to be introduced in Kansas and
Missouri in 1999, we do not anticipate any comprehensive legislation
passing in 1999.
In Kansas, a retail wheeling task force, formed by the legislature,
proposed a restructuring bill that would implement retail competition
on July 1, 2001. Two of the key points were: 1) the Kansas
Corporation Commission (KCC) would determine the amount of under-
utilized assets (stranded costs) each utility would be allowed to
recover and 2) a unit charge per kwh would be assessed to all
customers for recovery of competitive transition costs (such costs
include stranded costs, other regulatory assets, nuclear
decommissioning, etc.).
In Missouri, a retail wheeling task force formed by the Missouri
Public Service Commission (MPSC) issued its report in May 1998. The
report identified issues and various options for the legislature to
address. Also, a legislative committee has been formed to study the
issue.
Retail access could result in market-based rates below current cost-
based rates providing growth opportunities for low-cost producers and
risks for higher-cost producers, especially those with large
industrial customers. Lower rates and the loss of major customers
could result in stranded costs and place an unfair burden on the
remaining customer base or shareholders. Testimony filed in the
merger case in Kansas indicates stranded costs of approximately $1
billion for KCPL. An independent study prepared at the request of the
KCC concluded there are no stranded costs. We cannot predict whether
any stranded costs would be recoverable in future rates. If an
adequate and fair provision for recovery of lost revenues is not
provided, certain generating assets may have to be evaluated for
impairment and
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appropriate charges recorded against earnings. In addition to lower
profit margins, market-based rates could require generating assets to be
depreciated over shorter useful lives, increasing operating expenses.
KCPL is positioned to compete in an open market with its diverse
customer mix and pricing strategies. Industrial customers make up
about 21% of KCPL's retail mwh sales, well below the utility industry
average. KCPL's flexible industrial rate structure is competitive
with other companies in the region. In addition, we have entered into
or are negotiating long-term contracts for a large portion of KCPL's
industrial sales. Although no direct competition for retail electric
service currently exists within KCPL's service territory, it exists in
the bulk power market and between alternative fuel suppliers and KCPL.
We also are currently encountering third-party energy management
companies seeking to initiate relationships with large users in KCPL's
service territory in an attempt to enhance their chances to directly
supply electricity if retail wheeling is authorized.
Increased competition could also force utilities to change accounting
methods. Financial Accounting Standards Board (FASB) Statement No. 71
- - Accounting for Certain Types of Regulation, applies to regulated
entities whose rates are designed to recover the costs of providing
service. A utility's operations could stop meeting the requirements
of FASB 71 for various reasons, including a change in regulation or a
change in the competitive environment for a company's regulated
services. For those operations no longer meeting the requirements of
regulatory accounting, regulatory assets would be written off. KCPL
can maintain its $135 million of regulatory assets at December 31,
1998, as long as FASB 71 requirements are met.
Competition could eventually have a materially adverse affect on
KCPL's results of operations and financial position. Should
competition eventually result in a significant charge to equity,
capital costs and requirements could increase significantly.
NONREGULATED OPPORTUNITIES
KLT Inc. (KLT), a wholly-owned subsidiary of KCPL, pursues
nonregulated business ventures. In 1998, KLT sold the common stock of
KLT Power Inc., a wholly-owned subsidiary of KLT, resulting in an
after-tax gain of approximately $2.4 million. Remaining ventures
include investments in energy services, oil and gas development and
production, telecommunications and affordable housing limited
partnerships.
KCPL's equity investment in KLT was $119 million as of December 31,
1998 and 1997. KLT's net income for 1998 totaled $4.6 million
compared to $6.0 million in 1997. KLT's consolidated assets at
December 31, 1998, totaled $311 million.
In 1998, Home Service Solutions Inc. (HSS), a new wholly-owned
subsidiary of KCPL, invested in R.S. Andrews Enterprises, Inc. (RSAE),
a consumer services company in Atlanta, Georgia. RSAE expects to make
future acquisitions in other key U.S. markets. Also in 1998, HSS
formed Worry Free Service, Inc. and acquired the Worry Free
nonregulated assets from KCPL. Worry Free Service, Inc. provides
residential services including preventative maintenance and warranty
services for heating and air conditioning equipment. KCPL's equity
investment in Home Service Solutions Inc. was $21 million as of
December 31, 1998.
EARNINGS OVERVIEW
Earnings per share (EPS) for 1998 of $1.89 increased $0.71 from 1997.
Continued load growth and warmer than normal summer weather in 1998
compared to cooler than normal summer weather in 1997 contributed to
the increase in EPS in 1998. An additional increase in EPS resulted
from decreased
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merger expenses from $60 million ($0.59 per share) in 1997 to $15 million
($0.20 per share) in 1998. Kansas rate reduction accruals decreased EPS
$0.14. Additionally, increases in depreciation expense decreased EPS for
the year.
EPS for 1997 of $1.18 decreased $0.51 from 1996. EPS decreased
because merger expenses increased from $31 million ($0.31 per share)
in 1996 to $60 million ($0.59 per share) in 1997. The net effect of
the rate reductions approved by the MPSC lowered EPS for 1997 by an
estimated $0.17. Additionally, increases in depreciation expense
decreased EPS for 1997. Partially offsetting these decreases were
continued load growth, lower deferred Wolf Creek amortization and
increased subsidiary income.
MEGAWATT-HOUR (MWH) SALES AND ELECTRIC OPERATING REVENUES
Sales and revenue data:
Increase (Decrease) from Prior Year
1998 1997
Mwh Revenues Mwh Revenues
(revenue change in millions)
Retail:
Residential 8 % $19 5 % $ 9
Commercial 5 % 13 4 % (1)
Industrial 4 % 3 (4)% (3)
Other 8 % (4) 1 % (3)
Total retail 6 % 31 3 % 2
Sales for resale:
Bulk power sales 8 % 11 (22)% (12)
Other 4 % - 19 % 1
Total 42 (9)
Other revenues 1 1
Total electric operating revenues $43 $(8)
The KCC approved a rate settlement agreement, effective January 1,
1998, authorizing a $14.2 million annual revenue reduction and an
annual increase in depreciation expense of $2.8 million. Pending the
approval of a new Kansas rate design, we accrued, for refund to
customers, $14.2 million during 1998. The new rate design was
approved in December 1998 and directed KCPL to refund, starting March
1, 1999, the $14.2 million we accrued plus the amount that we accrue
for January and February 1999. The accrual for the rate refund is
recorded in Other in Current Liabilities on the Consolidated Balance
Sheet.
During 1996 the MPSC approved a stipulation and agreement authorizing
a $20 million revenue reduction in two phases and increasing
depreciation and amortization expense by $9 million per year. In July
1996 we implemented phase one and reduced revenues from commercial and
industrial customers by an estimated $9 million per year. The second
phase of this stipulation, implemented January 1, 1997, further
reduced Missouri residential, commercial and industrial revenues by an
estimated $11 million per year.
On January 26, 1999, a stipulation and agreement among KCPL, the MPSC
staff and public counsel was filed with the MPSC subject to approval
by the MPSC. The essential components of the stipulation are as
follows:
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- - Commencing with electric service provided on or after March 1,
1999, KCPL will reduce its annual Missouri electric revenues by 3.2
percent, or about $15 million.
- - The parties will not file a request for an increase or decrease
in KCPL's rates, or a refund of those rates, before the earlier of
September 1, 2001, or the closing of the KCPL/Western Resources
merger; such rates would not be effective before the earlier of March
1, 2002, or one year following closing of the merger.
- - In the merger case, staff and public counsel reserve the right to
recommend a rate reduction, upon closing of the merger, as a condition
of Commission approval of an alternative regulatory plan. They also
reserve the right to recommend rate reductions that would be effective
no sooner than one year following closing of the merger.
Warmer than normal summer weather and continued load growth increased
retail mwh sales in 1998 compared with 1997. Load growth consists of
higher usage per customer as well as new customer additions. As a
result of the warmer weather KCPL set a new summer peak demand for the
consumption of energy of 3,175 megawatts. Less than 1% of revenues
include an automatic fuel adjustment provision.
Other retail revenues in 1998 decreased from 1997 while Other retail
mwh sales increased reflecting the sale of the public streetlight
system to the City of Kansas City, Missouri in August 1997. KCPL
reduced the rate per mwh paid by the City as a result of the sale
agreement. The new rate is for electricity only while the old rate
was for electricity and equipment charges. The City entered into a
separate maintenance agreement with KCPL when it purchased the
streetlight system.
Retail mwh sales for 1997 increased 3% over 1996 while retail revenues
remained relatively flat due largely to the Missouri revenue
reductions discussed above. Industrial sales and revenues declined
primarily due to reduced sales to a major industrial customer as a
result of a strike by its employees. Summer temperatures in 1997 and
1996 were below normal. Despite this mild weather, retail mwh sales
increased due to load growth.
Bulk power sales vary with system requirements, generating unit and
purchased power availability, fuel costs and requirements of other
electric systems. The price per mwh and quantity of bulk power sales
increased in 1998 compared to 1997 increasing bulk power revenues.
Partially offsetting this increase are decreased bulk power revenues
due to an outage at the Hawthorn 5 generating unit in 1998. Outages
at the LaCygne 1 and 2 generating units in the second quarter of 1997
contributed to lower bulk power mwh sales in 1997.
Future mwh sales and revenues per mwh may be affected by national and
local economies, weather and customer conservation efforts.
Competition, including alternative sources of energy such as natural
gas, co-generation, IPPs and other electric utilities, may also affect
future sales and revenue.
FUEL AND PURCHASED POWER
Combined fuel and purchased power expenses for 1998 increased 7% from
1997 while total mwh sales (total of retail and sales for resale)
increased by 6%. The price per unit of purchased power increased in
1998 compared to 1997 due to decreased purchased power availability
and the widespread use of market-based rates in the competitive
wholesale market. Even with the increase in the price per unit of
purchased power, KCPL's price per unit of total generation and
purchased power in 1998 remained consistent with 1997. Purchased
power expenses include capacity purchases that provide a cost-
effective alternative to constructing new capacity. Purchased power
expenses also increased in 1998 due to replacement power expenses
incurred during the Hawthorn 5 and LaCygne 1 generating units outages.
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Combined fuel and purchased power expenses for 1997 remained
consistent with 1996 levels while total mwh sales decreased by 3%.
Purchased power expenses increased by about $7 million in 1997 over
1996 as KCPL incurred additional replacement power expenses during
outages at the LaCygne generating units in 1997. The cost per kwh for
purchased power was significantly higher than the cost per kwh of
generation.
Nuclear fuel costs per MMBTU remained substantially less than the
MMBTU price of coal. Nuclear fuel costs per MMBTU decreased 6% during
1998 and increased 1% during 1997. Nuclear fuel costs per MMBTU
averaged about 60% of the MMBTU price of coal for the last three
years. We expect the price of nuclear fuel to remain fairly constant
through the year 2001. During 1998 fossil plants represented about
70% of total generation and the nuclear plant about 30%. During 1997
fossil plants represented about 74% of total generation and the
nuclear plant about 26%.
The cost of coal burned declined 5% in 1998 compared to 1997 and
declined slightly in 1997 compared to 1996. KCPL's coal procurement
strategies continue to provide coal costs below the regional average.
We expect coal costs to remain fairly consistent with 1998 levels
through 2001.
OTHER OPERATION AND MAINTENANCE EXPENSES
Combined other operation and maintenance expenses for 1998 declined
slightly from 1997 due to lower non-fuel production operations and
lower administrative and general expenses, partially offset by
increased advertising expenses. Combined other operation and
maintenance expenses for 1997 increased from 1996 due largely to
increases in system dispatch, customer accounts expenses and Wolf
Creek non-fuel outage-related operations.
We continue to emphasize new technologies, improved work methodologies
and cost control. We continuously improve our work processes to
provide increased efficiencies and improved operations. Through the
use of cellular technology more than 90% of KCPL's customer meters are
read automatically.
DEPRECIATION AND AMORTIZATION
The increase in depreciation expense in 1998 compared to 1997
reflected the implementation of the KCC settlement agreement as well
as normal increases in depreciation from capital additions. The KCC
settlement agreement, effective January 1, 1998, authorized a $2.8
million annual increase in depreciation expense.
The increase in depreciation expense in 1997 compared to 1996
reflected the implementation of the 1996 MPSC stipulation and
agreement as well as normal increases in depreciation from capital
additions. The stipulation and agreement, effective July 1, 1996,
authorized a $9 million annual increase in depreciation expense at
about the same time the Missouri portion of Deferred Wolf Creek costs
became fully amortized in December 1996. This amortization totaled
about $9 million per year.
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TAXES
Operating income taxes decreased $9 million in 1996 compared to 1995.
The decrease was primarily due to adjustments reflecting the filing of
the 1995 tax returns and the settlement with the Internal Revenue
Service (IRS) regarding tax issues included in the 1985 through 1990
tax returns. Operating income taxes increased by $3 million in 1997
from this lower than normal 1996 level. Operating income taxes
increased $8 million in 1998 compared to 1997 reflecting higher
taxable operating income.
Components of general taxes:
1998 1997 1996
(thousands)
Property $ 41,398 $ 43,529 $ 45,519
Gross receipts 42,140 40,848 42,554
Other 10,048 8,920 9,175
Total $ 93,586 $ 93,297 $ 97,248
Property taxes decreased in 1998 compared to 1997 reflecting changes
in Kansas tax law which reduced the mill levy rates and lower Missouri
and Kansas property tax assessed valuations in 1998. Property taxes
decreased in 1997 compared to 1996 reflecting changes in Kansas tax
law which reduced the mill levy rates. Gross receipts taxes increased
in 1998 compared to 1997 reflecting higher billed Missouri revenues.
OTHER INCOME AND (DEDUCTIONS)
Miscellaneous income and (deductions) - net includes the following
significant items:
1998 1997 1996
(millions)
Merger-related expenses $ (15) $ (60) $ (31)
KLT * (22) (16) (10)
Other (5) (3) (9)
Total Miscellaneous
income and
(deductions) - net $ (42) $ (79) $ (50)
* KLT's net income or (loss) after considering income taxes and
interest charges was about $5 million in 1998, $6 million in 1997 and
($1) million in 1996.
Merger-related expenses in 1998 included costs associated with the new
and abandoned Western Resources merger structures. Merger-related
expenses were higher in 1997 due primarily to the $53 million payment
to UtiliCorp United Inc. (UtiliCorp) in February 1997. The September
1996 termination of the UtiliCorp merger agreement and the February
1997 merger agreement with Western Resources triggered the payment to
UtiliCorp under provisions of the UtiliCorp merger agreement. Merger-
related expenses in 1997 also included $7 million of costs associated
with the abandoned Western Resources merger structure.
KLT's 1998 operations were affected by the following significant
factors:
- - The gain on the sale of the common stock of KLT Power Inc. of $4
million.
- - A $9 million loss on a KLT equity investment in Digital Teleport,
Inc. (DTI) due to developmental costs incurred by DTI in 1998.
- - KLT's $6 million write down of its investment in a power station
in China. After this writeoff, KLT has no other recorded assets in
foreign countries.
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Miscellaneous (deductions) from KLT increased $6 million in 1997
compared to 1996 primarily due to increased costs due to increased oil
and gas development and production.
Other Income and (Deductions) - Income taxes reflect the tax impact on
total miscellaneous income and (deductions) - net. Additionally, we
accrued tax credits of $25 million in 1998 and $23 million in 1997
related to KLT's investments in affordable housing limited
partnerships and oil and gas investments. In 1996 we accrued tax
credits of $12 million related primarily to KLT's investments in
affordable housing limited partnerships. Tax credits in 1997
increased reflecting an $8 million increase in tax credits related to
oil and gas investments. This increase in tax credits and reduced net
income resulted in a significant impact on the effective income tax
rate in 1997. Accrued taxes on the balance sheet at December 31,
1997, were lower than normal because $9 million of these tax credits
did not reduce estimated tax payments since these amounts could only
be refunded by the IRS after the 1997 tax return was filed in 1998.
Non-taxable increases in the cash surrender value of corporate-owned
life insurance contracts also affected the relationship between
miscellaneous income and (deductions) - net and income taxes.
INTEREST CHARGES
Long-term debt interest expense decreased in 1998 compared to 1997
reflecting lower average levels of long-term debt outstanding. The
lower average levels of debt reflected $61 million in scheduled debt
repayments made by KCPL in 1998.
Long-term debt interest expense increased in 1997 compared to 1996
reflecting higher average levels of long-term debt outstanding. The
higher average levels of debt resulted mainly from financing by KLT to
support expanding subsidiary operations and funding of other corporate
capital requirements.
The average interest rate on long-term debt, including current
maturities, was about 6% during the last three years.
We use interest rate swap and cap agreements to limit the volatility
in interest expense on a portion of KLT's variable-rate, bank credit
agreement and KCPL's variable-rate, long-term debt. Although these
agreements are an integral part of interest rate management, the
incremental effect on interest expense and cash flows is not
significant. We do not use derivative financial instruments for
speculative purposes.
Mandatorily redeemable Preferred Securities interest expense reflects
interest charges incurred on the $150 million of 8.3% preferred
securities issued in April 1997.
WOLF CREEK
Wolf Creek is one of KCPL's principal generating units representing
about 16% of its accredited generating capacity. The plant's
operating performance has remained strong, contributing about 26% of
the annual mwh generation while operating at an average capacity of
88% over the last three years. Wolf Creek has the lowest fuel cost
per MMBTU of any of KCPL's generating units. During 1998 Wolf Creek
generated more mwhs than in any previous year.
We accrue the incremental operating, maintenance and replacement power
costs for planned outages evenly over the unit's operating cycle,
normally 18 months. As actual outage expenses are incurred, the
refueling liability and related deferred tax asset are reduced. Wolf
Creek's tenth refueling and maintenance outage is scheduled for the
spring of 1999 and is estimated to be a 40-day outage.
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Wolf Creek's ninth refueling and maintenance outage, budgeted for 35
days, began in early October 1997 and was completed in December 1997
(58 days). The extended length of the ninth outage was caused by
several equipment problems. Wolf Creek's eighth refueling and
maintenance outage, budgeted for 45 days, began in early February 1996
and was completed in April 1996 (64 days). The eighth outage started
one month early when the plant was shut down after water flow from the
cooling lake was restricted by ice buildup on an intake screen.
Actual costs of the 1997 and 1996 outages were $6 million and $2
million in excess of the costs estimated and accrued for the outages.
Wolf Creek's assets represent about 41% of utility total assets and
its operating expenses represent about 19% of utility operating
expenses. No major equipment replacements are currently projected.
An extended shut-down of Wolf Creek could have a substantial adverse
effect on KCPL's business, financial condition and results of
operations because of higher replacement power and other costs.
Although not expected, an unscheduled plant shut-down could be caused
by actions of the Nuclear Regulatory Commission reacting to safety
concerns at the plant or other similar nuclear units. If a long-term
shut-down occurred, the state regulatory commissions could reduce
rates by excluding the Wolf Creek investment from rate base.
Ownership and operation of a nuclear generating unit exposes KCPL to
risks regarding decommissioning costs at the end of the unit's life
and to potential retrospective assessments and property losses in
excess of insurance coverage. These risks are more fully discussed in
the related sections of Notes 1 and 4 to the Consolidated Financial
Statements.
ENVIRONMENTAL MATTERS
KCPL's operations must comply with federal, state and local
environmental laws and regulations. The generation and transmission
of electricity produces and requires disposal of certain products and
by-products, including polychlorinated biphenyl (PCBs), asbestos and
other potentially hazardous materials. The Federal Comprehensive
Environmental Response, Compensation and Liability Act (the Superfund
law) imposes strict joint and several liability for those who
generate, transport or deposit hazardous waste. This liability
extends to the current property owner as well as prior owners since
the time of contamination.
We continually conduct environmental audits designed to detect
contamination and ensure compliance with governmental regulations.
However, compliance programs needed to meet new and future
environmental laws and regulations governing water and air quality,
including carbon dioxide emissions, nitrogen oxide emissions,
hazardous waste handling and disposal, toxic substances and the
effects of electromagnetic fields, could require substantial changes
to operations or facilities (see Note 4 to the Consolidated Financial
Statements).
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue has resulted from the use of computer systems and
applications that use two digits instead of four to define the year.
Computer programs with date-sensitive software could recognize the
date of "00" as the Year 1900 rather than the Year 2000. Unless
corrected some computer systems and applications could incorrectly
process information resulting in miscalculations or system
disruptions.
We have assessed the potential of the Year 2000 Issue on KCPL's
Information Technology (IT) and non-IT processes and operations.
Beginning in 1997, we established a Year 2000 team responsible for
evaluating, identifying and correcting problems in all critical
computer software, hardware and
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embedded systems. We utilized both internal and external resources in
this process. Because we have invested approximately $56 million in new
Year 2000 ready technologies over the past several years, we identified
fewer issues than some companies.
The assessment of all of KCPL's major systems impacted by the Year
2000 Issue has been completed and remediation efforts are well
underway. We are substantially complete with readiness efforts for
KCPL's major processes with the exception of the new customer
information system. We expect the implementation of the new customer
information system and testing to be completed by mid-1999; however,
as a contingency measure, the current customer billing system is being
modified to be Year 2000 ready in case installation of the new system
is delayed.
On an ongoing basis, we are sharing information with other electric
industry organizations such as the Electric Power Research Institute
in order to adequately anticipate and plan for potential problems. We
will participate in two scheduled industry-wide drills in April and
September 1999. The monitoring phase of KCPL's Year 2000 project will
continue through at least the first quarter of 2000. We believe the
total costs of the assessment, remediation, testing and monitoring
efforts will be approximately $7 million. These costs will be
expensed as incurred.
Regarding the Wolf Creek Nuclear Generating Station, we believe we are
in compliance with the Nuclear Regulatory Commission's Year 2000
regulations and will file the required status response with the
Commission before July 1, 1999. The Commission performed an on-site
audit of Wolf Creek's Year 2000 project plans in November 1998, and no
areas of concern were identified. Control systems at Wolf Creek
utilize analog components that are not date-sensitive which mitigates
Year 2000 concerns relative to critical operations of the plant. All
assessments of affected systems are expected to be completed by the
end of the second quarter in 1999 with remediation being completed by
the end of the third quarter. The Commission guidelines are being
followed in the development of contingency plans.
We initiated communications with all large suppliers and customers to
evaluate KCPL's vulnerability to failure of others to remediate their
Year 2000 Issues. While no major issues have been discovered, we
cannot be certain their systems will not impact KCPL's operations.
Thus, we have developed a number of contingency plans to mitigate
potential problems with third party failures.
The most reasonable likely worse case scenario would be the loss or
partial interruption of KCPL's electrical system which is connected to
other utilities throughout the United States and Canada, east of the
Rocky Mountains. This interconnection is essential to the
reliability, stability and operational integrity of each connected
electric utility. KCPL could encounter difficulties supplying
electric service if other interconnected utilities fail to achieve
Year 2000 compliance and create an unstable condition on the grid.
We are addressing this and other potential Year 2000 risks by
implementing a number of action plans including:
- Preparing for the possibility of isolating a portion of KCPL
electric systems from disruption.
- Participating in operating contingency plans and drills developed
by the Southwest Power Pool and the North American Electric
Reliability Council.
- Implementing and testing radio communication for personnel
manning critical operation points.
- Testing and ensuring functional emergency radio systems are
operational for generating stations.
- Working with local authorities to establish a means of
communicating if telephones are not available.
- Ensuring readiness to execute the generation and systems black
start procedures.
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PROJECTED CONSTRUCTION EXPENDITURES
Total utility capital expenditures, excluding allowance for funds used
during construction, were $120 million in 1998. The utility
construction expenditures are projected for the next five years as
follows:
Construction Expenditures
1999 2000 2001 2002 2003 Total
(millions)
Generating facilities $ 74 $ 49 $ 49 $ 39 $ 27 $238
Nuclear fuel 4 19 13 12 25 73
Transmission facilities 4 6 7 10 17 44
Distribution and
general facilities 70 53 51 48 45 267
Total $152 $127 $120 $109 $114 $622
This construction expenditure plan is subject to continual review and
change. Operating leases may be used to replace some of the above
expenditures.
CAPITAL REQUIREMENTS AND LIQUIDITY
KCPL's liquid resources at December 31, 1998, included cash flows from
operations; $300 million of registered but unissued, unsecured medium-
term notes; $150 million of registered but unissued, preferred
securities and $281 million of unused bank lines of credit. The
unused lines include KCPL's short-term bank lines of credit of $210
million and KLT's bank credit agreement of $71 million.
KCPL continues to generate positive cash flows from operating
activities. Individual components of working capital will vary with
normal business cycles and operations such as the income tax refunds
applicable to 1997 received during 1998. Cash from operating
activities also increased in 1998 compared to 1997 due to increases in
net income and non-cash expenses. The majority of the increases in
non-cash expenses were due to the Kansas rate refunds accrued but not
refundable until March 1999; losses from KLT's equity investment in
Digital Teleport, Inc., a company developing a midwest regional fiber
optic network; and the refueling outage accrual. The timing of Wolf
Creek outages also affects the refueling outage accrual, deferred
income taxes and amortization of nuclear fuel.
Fuel inventories increased from December 31, 1997, to December 31,
1998, because coal inventory levels were only at 75% of targeted
levels at December 31, 1997, compared to 106% of targeted levels at
December 31, 1998. Construction work in progress increased $17
million from December 31, 1997, to December 31, 1998, because of
continued construction on production projects and system software
upgrades. Current maturities of long-term debt increased because
KLT's bank credit agreement expires in October 1999.
Cash used for investing activities varies with the timing of utility
capital expenditures and purchases of investments and nonutility
properties. Cash used for investing activities decreased in 1998
compared to 1997 partly due to KLT receiving $53 million of proceeds
from the sale of the common stock of KLT Power Inc. Additionally, KLT
made several large investments during 1997. Partially offsetting
these activities, KCPL received $21.5 million of proceeds in 1997 from
the sale of streetlights to the City of Kansas City, Missouri at a
minimal gain.
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Cash used for financing activities increased in 1998, compared to
1997, due primarily to $103 million of debt repayments. KLT used most
of the proceeds from the sale of KLT Power Inc. to make payments on
its bank credit agreement. KCPL made $61 million in scheduled
repayments of long-term debt in 1998. Cash from financing activities
increased in 1997 due to proceeds from the issuance of $150 million of
preferred securities and borrowings by KLT on its bank credit
agreement. The majority of cash from financing activities in 1997 was
used to pay merger expenses and finance additional purchases of
investments and nonutility properties by KLT.
KCPL's common dividend payout ratio was 87% in 1998, 137% in 1997 and
94% in 1996. The 1997 payout ratio is higher due mainly to $60
million in merger-related expenses in 1997.
We expect to meet day-to-day operations, utility construction
requirements and dividends with internally-generated funds. KCPL
might not be able to meet these requirements with internally-generated
funds because of the effect of inflation on operating expenses, the
level of mwh sales, regulatory actions, compliance with future
environmental regulations and the availability of generating units
(see the paragraph below). The funds needed to retire $392 million of
debt that matures in the next five years will be provided from
operations, refinancings or short-term debt. KCPL may issue
additional debt and/or additional equity to finance growth or take
advantage of new opportunities.
On February 17, 1999, an explosion occurred at KCPL's Hawthorn
Generating Station's 476-megawatt Unit No. 5. We estimate a net
increase in expense of between $6.5 million and $11.5 million (before
tax) for the year 1999, as a result of the explosion. These expenses
assume normal weather and operating conditions and include the effect
of increased net replacement power costs, reduced bulk power sales and
reduction of certain operating and maintenance expenses. We will
continue to evaluate any impact on future years. We do not anticipate
rate increases as a result of the Hawthorn explosion. We are
evaluating several alternatives regarding the replacement of the power
generated by Unit No. 5 and are confident that we can secure
sufficient power to meet KCPL's customers' energy needs during this
summer and beyond. Even prior to the explosion, we were finalizing
contracts to bring on line an additional 294-megawatts of capacity by
the summer of 2000 in addition to Hawthorn No. 6, a 141-megawatt gas-
fired combustion turbine, projected to be placed into commercial
operation during the spring of 1999. We also plan to permanently
replace the lost capacity at Hawthorn and are exploring size, fuel
source and technology alternatives (see Note 14 to the Consolidated
Financial Statements).
23
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 1998 1997 1996
(thousands)
ELECTRIC OPERATING REVENUES $938,941 $895,943 $903,919
OPERATING EXPENSES
Operation
Fuel 143,349 134,509 140,505
Purchased power 63,618 59,247 52,455
Other 188,991 191,897 180,719
Maintenance 70,998 70,892 71,495
Depreciation 115,452 110,898 103,912
Income taxes 78,782 71,113 68,155
General taxes 93,586 93,297 97,248
Deferred Wolf Creek costs amortization 0 1,368 11,617
Total 754,776 733,221 726,106
OPERATING INCOME 184,165 162,722 177,813
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds
used during construction 3,816 2,407 2,368
Miscellaneous income and
(deductions) - net (41,501) (79,421) (50,329)
Income taxes 45,982 63,034 36,402
Total 8,297 (13,980) (11,559)
INCOME BEFORE INTEREST CHARGES 192,462 148,742 166,254
INTEREST CHARGES
Long-term debt 57,012 60,298 53,939
Short-term debt 295 1,382 1,251
Mandatorily redeemable Preferred
Securities 12,450 8,853 0
Miscellaneous 4,457 3,990 4,840
Allowance for borrowed funds
used during construction (2,474) (2,341) (1,947)
Total 71,740 72,182 58,083
Net Income 120,722 76,560 108,171
Preferred Stock
Dividend Requirements 3,884 3,789 3,790
Earnings Available for
Common Stock $116,838 $72,771 $104,381
Average Number of Common
Shares Outstanding 61,884 61,895 61,902
Basic and Diluted earnings
per Common Share $1.89 $1.18 $1.69
Cash Dividends per
Common Share $1.64 $1.62 $1.59
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31 1998 1997 1996
(thousands)
Beginning Balance $428,452 $455,934 $449,966
Net Income 120,722 76,560 108,171
549,174 532,494 558,137
Dividends Declared
Preferred stock - at required rates 3,980 3,773 3,782
Common stock 101,495 100,269 98,421
Ending Balance $443,699 $428,452 $455,934
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31 December 31
1998 1997
(thousands)
ASSETS
UTILITY PLANT, at original cost
Electric $3,576,490 $3,502,796
Less-accumulated depreciation 1,410,773 1,314,154
Net utility plant in service 2,165,717 2,188,642
Construction work in progress 110,528 93,264
Nuclear fuel, net of amortization of
$105,661 and $86,516 40,203 41,649
Total 2,316,448 2,323,555
REGULATORY ASSET - RECOVERABLE TAXES 109,000 123,000
INVESTMENTS AND NONUTILITY PROPERTY 343,247 345,126
CURRENT ASSETS
Cash and cash equivalents 43,213 74,098
Electric customer accounts receivable, net of
allowance for doubtful accounts
of $1,886 and $1,941 31,150 28,741
Other receivables 38,981 33,492
Fuel inventories, at average cost 18,749 13,824
Materials and supplies, at average cost 45,363 46,579
Deferred income taxes 4,799 648
Other 5,926 7,155
Total 188,181 204,537
DEFERRED CHARGES
Regulatory assets 26,229 30,017
Other deferred charges 29,259 31,798
Total 55,488 61,815
Total $3,012,364 $3,058,033
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statements) $1,880,147 $2,051,489
CURRENT LIABILITIES
Notes payable to banks 10,000 1,243
Commercial paper 0 0
Current maturities of long-term debt 163,630 74,180
Accounts payable 61,764 57,568
Accrued taxes 15,625 1,672
Accrued interest 23,380 22,360
Accrued payroll and vacations 21,684 23,409
Accrued refueling outage costs 12,315 1,664
Other 28,874 15,068
Total 337,272 197,164
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 625,426 638,679
Deferred investment tax credits 58,786 63,257
Other 110,733 107,444
Total 794,945 809,380
COMMITMENTS AND CONTINGENCIES (Note 4)
Total $3,012,364 $3,058,033
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31 December 31
1998 1997
(thousands)
COMMON STOCK EQUITY
Common stock-150,000,000 shares authorized
without par value-61,908,726 shares issued,
stated value $449,697 $449,697
Retained earnings (see statements) 443,699 428,452
Accumulated other comprehensive income
Unrealized gain on securities available for sale 74 1,935
Capital stock premium and expense (1,668) (1,664)
Total 891,802 878,420
CUMULATIVE PREFERRED STOCK
$100 Par Value
3.80% - 100,000 shares issued 10,000 10,000
4.50% - 100,000 shares issued 10,000 10,000
4.20% - 70,000 shares issued 7,000 7,000
4.35% - 120,000 shares issued 12,000 12,000
No Par Value
4.27%* - 500,000 shares issued 50,000 50,000
$100 Par Value - Redeemable
4.00% 62 62
Total 89,062 89,062
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY KCPL
SUBORDINATED DEBENTURES 150,000 150,000
LONG-TERM DEBT (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 1998-2008, 6.95% and
6.92% weighted-average rate 338,500 407,500
4.23%* Environmental Improvement Revenue
Refunding Bonds due 2012-23 158,768 158,768
Guaranty of Pollution Control Bonds
4.31% as of December 31, 1997, due 2015-17 0 196,500
Environmental Improvement Revenue Refunding Bonds
4.28%* Series A & B due 2015 106,500 0
4.50% Series C due 2017 50,000 0
4.35% Series D due 2017 40,000 0
Subsidiary Obligations
Affordable Housing Notes due 2000-06, 8.42%
and 8.48% weighted-average rate 54,775 61,207
Bank Credit Agreement due October 31, 1999,
6.67% weighted-average rate as of
December 31, 1997 0 107,500
Other Long-Term Notes 740 2,532
Total 749,283 934,007
Total $1,880,147 $2,051,489
* Variable rate securities, weighted-average rate as of December 31, 1998
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1998 1997 1996
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $120,722 $76,560 $108,171
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 115,452 110,898 103,912
Amortization of:
Nuclear fuel 19,146 16,836 16,094
Deferred Wolf Creek costs 0 1,368 11,617
Other 9,071 8,223 5,507
Deferred income taxes (net) (2,468) 4,780 (8,662)
Investment tax credit amortization (4,471) (3,850) (4,163)
Losses from equity investments 11,683 2,748 3,268
Deferred storm costs 0 0 (8,885)
Kansas rate refund accrual 14,200 0 0
Allowance for equity funds used
during construction (3,816) (2,407) (2,368)
Other operating activities (Note 1) 23,144 (6,672) (7,582)
Net cash from operating activities 302,663 208,484 216,909
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (119,540) (124,734) (100,947)
Allowance for borrowed funds used
during construction (2,474) (2,341) (1,947)
Purchases of investments (55,154) (107,603) (35,362)
Purchases of nonutility property (22,611) (15,733) (20,395)
Sale of KLT Power 53,033 0 0
Sale of streetlights 0 21,500 0
Other investing activities 8,008 (8,902) (931)
Net cash from investing activities (138,738) (237,813) (159,582)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of mandatorily redeemable
Preferred Securities 0 150,000 0
Issuance of long-term debt 7,406 66,292 135,441
Repayment of long-term debt (102,680) (28,832) (74,230)
Net change in short-term borrowings 8,757 1,243 (19,000)
Dividends paid (105,475) (104,042) (102,203)
Other financing activities (2,818) (4,805) (2,154)
Net cash from financing activities (194,810) 79,856 (62,146)
NET CHANGE IN CASH AND CASH
EQUIVALENTS (30,885) 50,527 (4,819)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 74,098 23,571 28,390
CASH AND CASH EQUIVALENTS
AT END OF YEAR $43,213 $74,098 $23,571
CASH PAID DURING THE YEAR FOR:
Interest (net of amount capitalized) $71,696 $71,272 $52,457
Income taxes $24,788 $22,385 $58,344
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
1998 1997 1996
(thousands)
Net income $120,722 $76,560 $108,171
Other comprehensive income (loss):
Unrealized gain (loss) on
securities available for sale (2,915) (7,138) 10,171
Income tax benefit (expense) 1,054 2,589 (3,687)
Net unrealized gain (loss) on
securities available for sale (1,861) (4,549) 6,484
Comprehensive Income $118,861 $72,011 $114,655
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Kansas City Power & Light Company is a medium-sized electric utility
with more than 451,000 customers at year-end in western Missouri and
eastern Kansas. About 95% of KCPL's retail revenues are from the
Kansas City metropolitan area, an agribusiness center and major
regional center for wholesale, retail and service companies. About
two-thirds of KCPL's retail sales are to Missouri customers, the
remainder to Kansas customers.
The consolidated financial statements include the accounts of Kansas
City Power & Light Company, KLT Inc. (KLT) and Home Service Solutions
Inc. (HSS). KLT and HSS are wholly-owned, nonregulated subsidiaries.
The consolidated entity is referred to as KCPL. We formed KLT in 1992
as a holding company for various nonregulated business ventures.
Existing ventures include investments in energy services, oil and gas
development and production, telecommunications and affordable housing
limited partnerships. We formed HSS in 1998 and invested in R.S.
Andrews Enterprises, Inc., a consumer services company in Atlanta,
Georgia. Also in 1998, HSS formed Worry Free Service, Inc. and
acquired the Worry Free assets from KCPL. Worry Free provides
residential services including preventative maintenance and warranty
services for heating and air conditioning equipment.
Currently, the electric utility accounts for about 89% of consolidated
assets and about 96% of net income. Intercompany balances and
transactions have been eliminated. KLT and HSS revenues and expenses
are classified as Other Income and (Deductions) and Interest Charges
in the income statement.
The accounting records conform to the accounting standards set by the
Federal Energy Regulatory Commission (FERC) and generally accepted
accounting principles. These standards require the use of estimates
and assumptions that affect amounts reported in the financial
statements and the disclosure of commitments and contingencies.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid investments with
original maturities of three months or less.
Fair Value of Financial Instruments
The stated values of financial instruments as of December 31, 1998 and
1997, approximated fair market values. KCPL's incremental borrowing
rate for similar debt was used to determine fair value if quoted
market prices were not available.
Securities Available for Sale
Certain investments in equity securities are accounted for as
securities available for sale and adjusted to market value with
unrealized gains or (losses) reported as a separate component of
comprehensive income.
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The cost of securities available for sale held by KLT was $4.8 million
as of December 31, 1998, and $5.1 million as of December 31, 1997.
Net unrealized gains were $0.1 million at December 31, 1998, and $1.9
million at December 31, 1997.
Investments in Affordable Housing Limited Partnerships
Through December 31, 1998, KLT had invested $104 million in affordable
housing limited partnerships. About $73 million of these investments
were recorded at cost; the equity method was used for the remainder.
We reduce tax expense in the year tax credits are generated. A change
in accounting principle relating to investments made after May 19,
1995, requires the use of the equity method when a company owns more
than 5% in a limited partnership investment. Of the investments
recorded at cost, $69 million exceed this 5% level but were made
before May 19, 1995.
Utility Plant
Utility plant is stated at historical costs of construction. These
costs include taxes, an allowance for funds used during construction
(AFDC) and payroll-related costs including pensions and other fringe
benefits. Replacements, improvements and additions to units of
property are capitalized. Repairs of property and replacements of
items not considered to be units of property are expensed as incurred
(except as discussed under Wolf Creek Refueling Outage Costs). When
property units are retired or otherwise disposed, the original cost,
net of salvage and removal, is charged to accumulated depreciation.
AFDC represents the cost of borrowed funds and a return on equity
funds used to finance construction projects. AFDC on borrowed funds
reduces interest charges. AFDC on equity funds is shown as a noncash
item in Other Income and (Deductions). The rates used to compute
gross AFDC are compounded semi-annually and averaged 9.3% for 1998,
8.6% for 1997 and 8.5% for 1996.
Depreciation is computed using the straight-line method over the
estimated lives of depreciable property based on rates approved by
state regulatory authorities. Annual depreciation rates average about
3%.
Wolf Creek Refueling Outage Costs
Forecasted incremental costs to be incurred during scheduled Wolf
Creek Generating Station (Wolf Creek) refueling outages are accrued
monthly over the unit's operating cycle, normally about 18 months.
Estimated incremental costs, which include operating, maintenance and
replacement power expenses, are based on budgeted outage costs and the
estimated outage duration. Changes to or variances from those
estimates are recorded when known or probable.
Nuclear Plant Decommissioning Costs
The Missouri Public Service Commission (MPSC) and the Kansas
Corporation Commission (KCC) require the owners of Wolf Creek to
submit an updated decommissioning cost study every three years. The
following table shows the decommissioning cost estimates and the
escalation rates and earnings assumptions approved by the MPSC in 1998
and the KCC in 1997. The decommissioning cost estimates are based on
the immediate dismantlement method and include the costs of
decontamination, dismantlement and site restoration. We do not expect
plant decommissioning to start before 2025.
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KCC MPSC
Future cost of decommissioning:
Total Station $1.3 billion $1.8 billion
47% share $624 million $832 million
Current cost of decommissioning
in 1996 dollars):
Total Station $409 million $409 million
47% share $192 million $192 million
Annual escalation factor 3.60% 4.50%
Annual return on trust assets 6.80% 7.66%
KCPL contributes about $3 million annually to a tax-qualified trust
fund to be used to decommission Wolf Creek. These costs are charged
to other operation expenses and recovered in billings to customers
(rates). Contributions to the trust will increase slightly in 2000.
These funding levels assume a certain return on trust assets. If the
actual return on trust assets is below the anticipated level, we
believe a rate increase will be allowed ensuring full recovery of
decommissioning costs over the remaining life of the unit.
The trust fund balance, including reinvested earnings, was $47 million
at December 31, 1998, and $40 million at December 31, 1997. These
assets are reflected in Investments and Nonutility Property. The
related liabilities for decommissioning are included in Deferred
Credits and Other Liabilities - Other.
In 1996 the Financial Accounting Standards Board (FASB) issued an
Exposure Draft of a proposed Statement of Financial Accounting
Standards, Accounting for Certain Liabilities Related to Closure or
Removal of Long-Lived Assets, that addressed the accounting for
decommissioning costs. In November 1997 the FASB decided to
reconsider the scope of the statement. The FASB expects to issue
another Exposure Draft in 1999.
If current electric utility industry accounting practices for
decommissioning costs change, annual decommissioning expenses could
increase and trust fund income from the external decommissioning
trusts could be reported as investment income. We cannot predict the
affect of any such changes, if any, on results of operations,
financial position, or related regulatory practices. However, we do
not anticipate results of operations to be significantly affected as
long as KCPL is regulated.
Nuclear Fuel
We amortize nuclear fuel to fuel expense based on the quantity of heat
produced during generation of electricity. Under the Nuclear Waste
Policy Act of 1982, the Department of Energy (DOE) is responsible for
the permanent disposal of spent nuclear fuel. For this future
disposal of spent nuclear fuel, KCPL pays the DOE a quarterly fee of
one-tenth of a cent for each kilowatt-hour of net nuclear generation
delivered and sold. These disposal costs are charged to fuel expense.
A permanent disposal site may not be available for the industry until
2010 or later, although an interim facility may be available earlier.
Under current DOE policy, once a permanent site is available, the DOE
will accept spent nuclear fuel first from the owners with the oldest
spent fuel. As a result, disposal services for Wolf Creek may not be
available before 2016. Wolf Creek has an on-site, temporary storage
facility for spent nuclear fuel. Under current regulatory guidelines,
this facility can provide storage space until about 2005. Wolf Creek
has started plans to increase its on-site storage capacity for all
spent fuel expected to be generated by Wolf Creek through the end of
its licensed life in 2025.
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Regulatory Assets
FASB Statement No. 71 - Accounting for Certain Types of Regulation,
applies to regulated entities whose rates are designed to recover the
costs of providing service. Under this statement, we defer on the
balance sheet items allowed by a commission's rate order or when it is
probable, based on regulatory past practices, that future rates will
recover the amortization of the deferred costs. If FASB 71 were not
applicable, the unamortized balance of $135.2 million of KCPL's
regulatory assets, net of the related tax benefit, would be written
off.
December 31, Amortization
1998 Ending period
Deferred Charges (millions)
Coal contract termination $ 6.5 2002
costs
1996 snowstorm costs 5.3 2001
Decommission and decontaminate
federal uranium enrichment
facilities 5.5 2007
Premium on redeemed debt 7.2 2023
Other 1.7 2006
Total 26.2
Recoverable Taxes 109.0
Total Regulatory Assets $ 135.2
Revenue Recognition
We use cycle billing and accrue estimated unbilled revenue at the end
of each reporting period.
Income Taxes
The balance sheet includes deferred income taxes for all temporary
differences between the tax basis of an asset or liability and that
reported in the financial statements. These deferred tax assets and
liabilities are determined by using the tax rates scheduled by the tax
law to be in effect when the differences reverse.
Regulatory Asset - Recoverable Taxes mainly reflects the future
revenue requirements necessary to recover the tax benefits of existing
temporary differences previously passed through to customers. We
record operating income tax expense based on ratemaking principles.
However, if the method used for the balance sheet were reflected in
the income statement, net income would remain the same.
We amortize investment tax credits to income over the remaining
service lives of the related properties.
Derivative Financial Instruments
We use interest rate swap and cap agreements to reduce the impact of
changes in interest rates on variable-rate debt. The net effect of
these agreements is recorded as interest expense. Interest rate swap
agreements effectively fix the interest rates on a portion of KCPL's
variable-rate debt. Interest rate caps limit the interest rate on a
portion of KCPL's variable-rate debt by setting a maximum rate. These
agreements are not adjusted to market value as they are used only to
manage interest expense and the intent is to hold them until their
termination date.
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Environmental Matters
We accrue environmental costs when it is probable a liability has been
incurred and the amount of the liability can be reasonably estimated.
Basic and Diluted Earnings per Common Share Calculation
1998 1997 1996
(millions)
Net Income $ 120.7 $ 76.6 $ 108.2
Less: Preferred stock dividend
requirements $ 3.9 $ 3.8 $ 3.8
Earnings available for common stock $ 116.8 $ 72.8 $ 104.4
Divided by: Average number of common
shares outstanding 61.9 61.9 61.9
Basic and diluted earnings per common
share $ 1.89 $ 1.18 $ 1.69
Consolidated Statements of Cash Flows - Other Operating Activities
1998 1997 1996
Cash flows affected by changes in: (thousands)
Receivables $ (7,898) $ 973 $ 1,462
Fuel inventories (4,925) 5,253 3,026
Materials and supplies 1,216 755 (159)
Accounts payable 4,196 1,950 3,112
Accrued taxes 13,953 (16,771) (21,283)
Accrued interest 1,020 1,306 4,148
Wolf Creek refueling outage
accrual 10,651 (5,517) (6,382)
Other 4,931 5,379 8,494
Total $ 23,144 $ (6,672) $ (7,582)
Change in Accounting Estimate
In 1998 we adopted the American Institute of Certified Public
Accountants Statement of Position (SOP) 98-1 - Accounting for the
Costs of Computer Software Developed or Obtained For Internal Use.
Because we adopted SOP 98-1 for 1998, net income increased
approximately $3.2 million ($0.05 per share). Net income increased
because we capitalized payroll costs for employees developing the
software. We expensed such costs in prior years. We amortize
capitalized software costs on a straight-line basis over estimated
service lives of 5 to 10 years.
2. PENSION PLANS AND OTHER EMPLOYEE BENEFITS
KCPL has defined benefit pension plans for its employees, including
officers. Benefits under these plans reflect the employees'
compensation, years of service and age at retirement. KCPL satisfies
the minimum funding requirements under the Employee Retirement Income
Security Act of 1974.
In addition to providing pension benefits, KCPL provides certain
postretirement health care and life insurance benefits for
substantially all retired employees.
We accrue the cost of postretirement health care and life insurance
benefits during an employee's years of service and recover these
accruals through rates. We fund the portion of net periodic
postretirement benefit costs that are tax deductible.
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Pension Benefits Other Benefits
1998 1997 1998 1997
(thousands)
Change in benefit obligation
Benefit obligation at
beginning of year $334,017 $307,050 $33,198 $ 32,190
Service cost 9,661 8,427 532 514
Interest cost 24,892 24,258 2,429 2,518
Contribution by participants 169 159
Actuarial loss 39,214 17,307 2,980 929
Benefits paid (22,875) (22,707) (2,832) (2,763)
Benefits paid by KCPL (321) (318) (254) (349)
Benefit obligation at end of $384,588 $334,017 $36,222 $ 33,198
year (a)
Change in plan assets
Fair value of plan assets at
beginning of year $423,331 $363,285 $ 4,970 $ 3,620
Actual return on plan assets 5,131 75,436 380 241
Contributions by employer and
participants 2,242 7,317 3,846 3,872
Benefits paid (22,875) (22,707) (2,832) (2,763)
Fair value of plan assets at
end of year $407,829 $423,331 $ 6,364 $ 4,970
Funded status $ 23,241 $ 89,314 $(29,858)$(28,228)
Unrecognized actuarial (gain)
loss (31,907) (96,662) 370 (2,424)
Unrecognized prior service
cost 3,921 4,468 555 632
Unrecognized transition
obligation (6,397) (8,469) 16,442 17,616
Accrued benefit cost $(11,142)$(11,349)$(12,491)$(12,404)
(a) Based on weighted-average discount rates of 6.75% in 1998 and
7.5% in 1997; and increases in future salary levels of 4% to 5%
in 1998 and 1997.
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
Components of net (thousands)
periodic Benefit cost
Service cost $9,661 $8,427 $8,164 $532 $514 $574
Interest cost 24,892 24,258 23,379 2,429 2,518 2,520
Expected return on plan
assets (29,806) (25,142)(24,334) (203) (118) (97)
Amortization of prior
service cost 547 491 491 77 77 77
Recognized net actuarial
loss (gain) (910) (622) 431 8 (25) 26
Transition obligation (2,072) (2,072) (2,072) 1,174 1,174 1,174
Net periodic benefit
cost $2,312 $5,340 $6,059 $4,017 $4,140 $4,274
Long-term rates of return on pension assets of 9.0% to 9.25% were
used.
Actuarial assumptions include an increase in the annual health care
cost trend rate for 1999 of 8%, decreasing gradually over a two-year
period to its ultimate level of 6%. The health care plan requires
retirees to share in the cost when premiums exceed a certain amount.
An increase or decrease in the assumed health care cost trend rate by
1% per year would only increase or decrease the benefit
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obligation as of December 31, 1998, by about $600,000 and the combined
service and interest costs of the net periodic postretirement benefit
cost for 1998 by about $60,000.
Stock Options
The exercise price of stock options granted equaled the market price
of KCPL's common stock on the grant date. One-half of all options
granted vested one year after the grant date, the other half vested
two years after the grant date. An amount equal to the quarterly
dividends paid on KCPL's common stock shares (dividend equivalents)
accrues on the options for the benefit of option holders. The option
holders are entitled to stock for their accumulated dividend
equivalents only if the options are exercised when the market price is
above the exercise price. Unexercised options expire ten years after
the grant date.
We follow Accounting Principles Board Opinion 25 - Accounting for
Stock Issued to Employees and related interpretations in accounting
for this plan. Because of the dividend equivalents provision, we
expensed $0.1 million in 1998, $1.2 million in 1997 and $1.4 million
in 1996. The expense includes accumulated and reinvested dividends
plus the appreciation in stock price since the grant date. If the
stock price decreases below the exercise price, we would reverse the
cumulative expense related to those options.
FASB Statement No. 123 - Accounting for Stock-Based Compensation
requires certain disclosures regarding expense and value of options
granted using the fair-value method even though we follow APB Opinion
25. We have expensed approximately the same amount as required by
FASB 123. For options outstanding at December 31, 1998, grant prices
range from $20.625 to $26.188 and the weighted-average remaining
contractual life is 5.8 years.
Stock option activity over the last three years is summarized below:
1998 1997 1996
shares price* shares price* shares price*
Outstanding at January 1 265,250 $23.12 298,875 $22.96 266,125 $22.14
Granted --- -- --- -- 59,000 26.19
Exercised (143,875) 22.68 (33,625) 21.75 (26,250) 22.27
Canceled (23,500) 24.54 --- -- --- --
Outstanding at December 31 97,875 $23.41 265,250 $23.12 298,875 $22.96
Exercisable as of
December 31 97,875 $23.41 235,750 $22.73 206,500 $22.02
*weighted-average price
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3. INCOME TAXES
Income tax expense consisted of the following:
1998 1997 1996
(thousands)
Current income taxes:
Federal $ 32,621 $ 2,801 $ 35,816
State 7,118 4,348 8,762
Total 39,739 7,149 44,578
Deferred income taxes, net:
Federal (2,225) 4,108 (7,441)
State (243) 672 (1,221)
Total (2,468) 4,780 (8,662)
Investment tax credit amortization
and reversals (4,471) (3,850) (4,163)
Total income tax expense $ 32,800 $ 8,079 $ 31,753
KCPL's effective income tax rates differed from the statutory federal
rates mainly due to the following:
1998 1997 1996
Federal statutory income tax rate 35.0% 35.0% 35.0%
Differences between book and tax
depreciation not normalized 2.1 3.7 (0.4)
Amortization of investment tax credits (2.9) (4.5) (3.0)
Federal income tax credits (14.6) (26.0) (9.1)
State income taxes 2.9 3.9 3.5
Other (1.1) (2.6) (3.3)
Effective income tax rate 21.4% 9.5% 22.7%
The tax effects of major temporary differences resulting in deferred
tax assets and liabilities in the balance sheets are as follows:
December 31 1998 1997
(thousands)
Plant related $ 547,223 $ 558,629
Recoverable taxes 42,000 48,000
Other 31,404 31,402
Net deferred income tax liability $ 620,627 $ 638,031
The net deferred income tax liability consisted of the following:
December 31 1998 1997
(thousands)
Gross deferred income tax assets $ (64,564) $ (61,358)
Gross deferred income tax liabilities 685,191 699,389
Net deferred income tax liability $ 620,627 $ 638,031
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4. COMMITMENTS AND CONTINGENCIES
Nuclear Liability and Insurance
Liability Insurance
The Price-Anderson Act currently limits the combined public
liability of nuclear reactor owners to $9.7 billion for claims
that could arise from a single nuclear incident. The owners of
Wolf Creek (the Owners) carry the maximum available commercial
insurance of $0.2 billion. Secondary Financial Protection (SFP),
an assessment plan mandated by the Nuclear Regulatory Commission,
provides insurance for the $9.5 billion balance.
Under SFP, if there were a catastrophic nuclear incident
involving any of the nation's licensed reactors, the Owners would
be subject to a maximum retrospective assessment per incident of
up to $88 million ($41 million, KCPL's share). The Owners are
jointly and severally liable for these charges, payable at a rate
not to exceed $10 million ($5 million, KCPL's share) per incident
per year, excluding applicable premium taxes. The assessment,
most recently revised in 1998, is subject to an inflation
adjustment every five years based on the Consumer Price Index.
Property, Decontamination, Premature Decommissioning and Extra
Expense Insurance
The Owners also carry $2.8 billion ($1.3 billion, KCPL's share)
of property damage, decontamination and premature decommissioning
insurance for loss resulting from damage to the Wolf Creek
facilities. Nuclear Electric Insurance Limited (NEIL) provides
this insurance.
In the event of an accident, insurance proceeds must first be
used for reactor stabilization and site decontamination. KCPL's
share of any remaining proceeds can be used for property damage
restoration and premature decommissioning costs. Premature
decommissioning coverage applies only if an accident at Wolf
Creek exceeds $500 million in property damage and decontamination
expenses, and only after trust funds have been exhausted (see
Note 1 - Nuclear Plant Decommissioning Costs).
The Owners also carry additional insurance from NEIL to cover
costs of replacement power and other extra expenses incurred in
the event of a prolonged outage resulting from accidental
property damage at Wolf Creek.
Under all NEIL policies, KCPL is subject to retrospective
assessments if NEIL losses, for each policy year, exceed the
accumulated funds available to the insurer under that policy.
The estimated maximum amount of retrospective assessments to KCPL
under the current policies could total about $7 million.
In the event of a catastrophic loss at Wolf Creek, the insurance
coverage may not be adequate to cover property damage and extra
expenses incurred. Uninsured losses, to the extent not recovered
through rates, would be assumed by KCPL and could have a
material, adverse effect on KCPL's financial condition and
results of operations.
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Low-Level Waste
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated
that the various states, individually or through interstate compacts,
develop alternative low-level radioactive waste disposal facilities.
The states of Kansas, Nebraska, Arkansas, Louisiana and Oklahoma
formed the Central Interstate Low-Level Radioactive Waste Compact and
selected a site in northern Nebraska to locate a disposal facility.
WCNOC and the owners of the other five nuclear units in the compact
provide most of the pre-construction financing for this project. As
of December 31, 1998, KCPL's net investment on its books was $7.3
million for this project.
Significant opposition to the project has been raised by Nebraska
officials and residents in the area of the proposed facility, and
attempts have been made through litigation and proposed legislation in
Nebraska to slow down or stop development of the facility. On
December 18, 1998, the application for a license to construct this
project was denied. On January 15, 1999, a request for a contested
case hearing on the denial of the license was filed. The contested
case hearing must be granted. There is a reasonable possibility that
the contested case hearing will be stayed for a significant period of
time. If such a stay occurs, a greater possibility of reversing the
license denial will exist when the contested case hearing ultimately
is conducted.
Nuclear Fuel Commitments
As of December 31, 1998, KCPL's portion of Wolf Creek nuclear fuel
commitments included $25 million for enrichment through 2003, $60
million for fabrication through 2025 and $6 million for uranium and
conversion through 2001.
Environmental Matters
KCPL's policy is to act in an environmentally responsible manner and
use the latest technology available to avoid and treat contamination.
We continually conduct environmental audits designed to ensure
compliance with governmental regulations and detect contamination.
However, governmental bodies may impose additional or more rigid
environmental regulations that could require substantial changes to
operations or facilities.
Monitoring Equipment and Certain Air Toxic Substances
The Clean Air Act Amendments of 1990 required KCPL to spend about
$5 million in prior years for the installation of continuous
emission monitoring equipment to satisfy the requirements under
the acid rain provision. Also a study under the Act could
require regulation of certain air toxic substances, including
mercury. We cannot predict the likelihood of any such
regulations or compliance costs.
Air Particulate Matter
In July 1997 the United States Environmental Protection Agency
(EPA) published new air quality standards for particulate matter.
Additional regulations implementing these new particulate
standards have not been finalized. Without the implementation
regulations, the real impact of the standards on KCPL cannot be
determined. However, the impact on KCPL and other utilities that
use fossil fuels could be substantial. Under the new fine
particulate regulations the EPA is in the process of implementing
a three-year study of fine particulate emissions. Until this
testing and review period has been completed, KCPL cannot
determine additional compliance costs, if any, associated with
the new particulate regulations.
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Nitrogen Oxide
In 1997 the EPA also issued new proposed regulations on reducing
nitrogen oxide (NOx) emissions. The EPA announced in 1998 final
regulations implementing reductions in NOx emissions. These
regulations require 22 states, including Missouri, to submit
plans for controlling NOx emissions by September 1999. The
regulations require a significant reduction in NOx emissions from
1990 levels at KCPL's Missouri coal-fired plants by the year
2003.
To achieve these reductions, KCPL would need to incur
significantly higher capital costs or purchase power or NOx
emissions allowances. It is possible that purchased power or
emissions allowances may be too costly or unavailable.
Preliminary analysis of the regulations indicate that selective
catalytic reduction technology will be required for some of the
KCPL units, as well as other changes. Currently, we estimate
that additional capital expenditures to comply with these
regulations could range from $90 to $150 million over the period
from 1999 to 2002. Operations and maintenance expenses could
also increase by more than $10 million per year, beginning in
2003.
We continue to refine these preliminary estimates and explore
alternatives to comply with these new regulations to minimize, to
the extent possible, KCPL's capital costs and operating expenses.
The ultimate cost of these regulations could be significantly
different than the amounts estimated above.
KCPL and several other western Missouri utilities filed suit
against the EPA over the inclusion of western Missouri in the NOx
reduction program. This matter is in the early stage of
litigation and the outcome cannot be predicted at this time.
Carbon Dioxide
At a December 1997 meeting in Kyoto, Japan, the Clinton
Administration supported changes to the International Global
Climate Change treaty which would require a seven percent
reduction in United States carbon dioxide (CO2) emissions below
1990 levels. President Clinton stated that this change in the
treaty would not be submitted to the U.S. Senate at this time
where ratification is uncertain. If future reductions of
electric utility CO2 emissions are eventually required, the
financial impact upon KCPL could be substantial.
Coal Contracts
KCPL's share of coal purchased under existing contracts was $37
million in 1998, $38 million in 1997 and $36 million in 1996. Under
these coal contracts, KCPL's remaining share of purchase commitments
totals $80 million. Obligations for the years 1999 through 2003 total
$35, $17, $9, $9 and $10 million, respectively. The remainder of
KCPL's coal requirements will be fulfilled through spot market
purchases. KCPL has freight commitments for delivery of coal for the
next seven years of approximately $15 to $20 million per year.
Leases
KCPL has a transmission line lease with another utility whereby, with
FERC approval, the rental payments can be increased by the lessor. If
this occurs, we can cancel the lease if we are able to
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secure an alternative transmission path. Commitments under this lease
total $2 million per year and $51 million over the remaining life of the
lease if it is not canceled.
Rental expense for other leases including railcars, computer
equipment, buildings, transmission line and other items was $20 to
$23 million per year during the last three years. The remaining
rental commitments under these leases total $170 million. Obligations
for the years 1999 through 2003 average $14 million per year. Capital
leases are not material and are included in these amounts.
As the managing partner of three jointly-owned generating units, KCPL
has entered into leases for railcars to serve those units. We have
reflected the entire lease commitment in the above amounts although
about $2 million per year ($32 million total) will be reimbursed by
the other owners.
KCPL has a lease agreement that expires in 2000 for a combustion
turbine. This lease commitment was not included in the above
commitment because the turbine has not been accepted by KCPL. The
operating lease commitment could be as much as $50 million.
Purchased Capacity Commitments
KCPL purchases capacity from other utilities and nonutility suppliers.
Purchasing capacity provides the option to purchase energy if needed
or when market prices are favorable. This is a cost-effective
alternative to new construction. As of December 31, 1998, contracts
to purchase capacity totaled $222 million through 2016. KCPL
purchased capacity of about $26 million during each of the last three
years. For the years 1999 through 2003, these commitments average
$20 million per year. For the next five years, net capacity purchases
average about 7% of KCPL's 1998 total available capacity.
5. SEGMENT AND RELATED INFORMATION
We adopted SFAS No. 131 - Disclosures About Segments of an Enterprise
and Related Information. KCPL's reportable segments are strategic
business units. Electric Operations includes the regulated electric
utility, unallocated corporate charges and wholly-owned subsidiaries
on an equity basis. KLT is a holding company for various nonregulated
business ventures. The Other column represents the operations of HSS.
The summary of significant accounting policies applies to all of the
segments. We evaluate performance based on profit or loss from
operations and return on capital investment. We eliminate all
intersegment sales and transfers. We include KLT and HSS revenues and
expenses in Other Income and (Deductions) and Interest Charges in the
Consolidated Statements of Income.
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The table below reflects summarized financial information concerning
KCPL's reportable segments.
Electric Intersegment Consolidated
Operations KLT Inc. Other Eliminations Totals
1998 (thousands)
Electric Operating
Income (a) $ 184,165 $ 184,165
Miscellaneous
Income (b) 21,808 $ 25,246 $ 733 $ (4,486) 43,301
Miscellaneous
Deductions(c) (36,496) (47,373) (933) - (84,802)
Income taxes on
Other Income and
(Deductions) 5,694 40,210 78 - 45,982
Interest Charges (58,265) (13,475) - - (71,740)
Net Income 120,722 4,608 (122) (4,486) 120,722
Assets 2,831,052 310,750 24,239 (153,677) 3,012,364
1997
Electric Operating
Income (a) $ 162,722 $ 162,722
Miscellaneous
Income (b) 20,407 $ 24,651 $ (6,037) 39,021
Miscellaneous
Deductions(c) (77,614) (40,828) - (118,442)
Income taxes on
Other Income and
(Deductions) 27,279 35,755 - 63,034
Interest Charges (58,641) (13,541) - (72,182)
Net Income 76,560 6,037 (6,037) 76,560
Assets 2,835,414 346,154 (123,535) 3,058,033
1996
Electric Operating
Income (a) $ 177,813 $ 177,813
Miscellaneous
Income (b) 1,978 $ 1,453 $ 1,412 4,843
Miscellaneous
Deductions(c) (43,408) (11,764) - (55,172)
Income taxes on
Other Income and
(Deductions) 18,188 18,214 - 36,402
Interest Charges (48,769) (9,314) - (58,083)
Net Income(Loss) 108,171 (1,412) 1,412 108,171
Assets 2,749,828 224,308 (59,624) 2,914,512
(a) Refer to the Consolidated Statements of Income for detail of
Electric Operations revenues and expenses.
(b) Includes nonregulated revenues, interest and dividend income, and
losses from equity investments.
(c) Includes nonregulated expenses and merger-related expenses.
6. INTANGIBLE ASSETS
The application of purchase accounting for certain investments
resulted in about $17 million in goodwill at December 31, 1998. These
amounts are included in Other deferred charges and Investments and
Nonutility Property on the consolidated balance sheets and amortized
over 10 to 40 years.
7. SALE OF ACCOUNTS RECEIVABLE
As of December 31, 1998 and 1997, we sold with limited recourse
$60 million of customer accounts receivable. Related costs of
approximately $3.5 million for each of the last three years were
included in Other Income and (Deductions) - Miscellaneous income and
(deductions) - net.
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8. SHORT-TERM BANK LINES OF CREDIT
Under minimal fee arrangements, unused short-term bank lines of credit
totaled $210 million as of December 31, 1998 and $300 million as of
December 31, 1997.
9. COMMON STOCK EQUITY, PREFERRED STOCK, REDEEMABLE PREFERRED STOCK
AND MANDATORILY REDEEMABLE PREFERRED SECURITIES
Common Stock Equity
KCPL has shares of common stock registered with the Securities and
Exchange Commission for a Dividend Reinvestment and Stock Purchase
Plan (the Plan). The Plan allows common shareholders, directors and
employees to purchase shares of the common stock by reinvesting
dividends or making optional cash payments. We currently purchase
shares for the Plan on the open market.
KCPL held 10,706 shares as of December 31, 1998 and 35,811 shares as
of December 31, 1997 of its common stock to be used for future
distribution. We include the cost of these shares in Investments and
Nonutility Property.
The Restated Articles of Consolidation contain a restriction related
to the payment of dividends in the event common equity falls to 25% of
total capitalization. If preferred stock dividends are not declared
and paid when scheduled, KCPL could not declare or pay common stock
dividends or purchase any common shares. If the unpaid preferred
stock dividends equal four or more full quarterly dividends, the
preferred shareholders, voting as a single class, could elect members
to the Board of Directors.
Preferred Stock and Redeemable Preferred Stock
Scheduled mandatory sinking fund requirements for the redeemable
4% Cumulative Preferred Stock are 1,600 shares per year. Shares
issued totaled 9,557 as of December 31, 1998 and 11,157 as of December
31, 1997. Shares held by KCPL to meet future sinking fund
requirements totaled 8,934 as of December 31, 1998 and 10,534 as of
December 31, 1997. The cost of the shares held is reflected as a
reduction of the capital account.
As of December 31, 1998, 0.4 million shares of $100 par Cumulative
Preferred Stock, 1.6 million shares of Cumulative No Par Preferred
Stock and 11 million shares of no par Preference Stock were
authorized. We have the option to redeem the $89 million of issued
Cumulative Preferred Stock at prices approximating par or stated
value.
Mandatorily Redeemable Preferred Securities
In April 1997 KCPL Financing I (Trust), a wholly-owned subsidiary of
KCPL, issued $150,000,000 of 8.3% preferred securities. The sole
asset of the Trust is the $154,640,000 principal amount of 8.3% Junior
Subordinated Deferrable Interest Debentures, due 2037, issued by KCPL.
The terms and interest payments on these debentures correspond to the
terms and dividend payments on the preferred securities. We deduct
these payments for tax purposes. We may elect to defer interest
payments on the debentures for a period up to 20 consecutive quarters,
causing dividend payments on the preferred securities to be deferred
as well. In case of a deferral, interest and dividends will continue
to accrue, along with quarterly compounding interest on the deferred
amounts. We may redeem all or a portion of the debentures after March
31, 2002, requiring an equal amount of preferred securities to be
redeemed at face value plus accrued and unpaid distributions. The
back-up undertakings in the aggregate provide a full and unconditional
guarantee of amounts due on the preferred securities.
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10. LONG-TERM DEBT
General Mortgage Bonds and Unsecured Notes
KCPL is authorized to issue mortgage bonds under the General Mortgage
Indenture and Deed of Trust dated December 1, 1986, as supplemented.
The Indenture creates a mortgage lien on substantially all utility
plant.
As of December 31, 1998, $566 million general mortgage bonds were
pledged under the Indenture to secure the outstanding medium-term
notes and revenue refunding bonds.
KCPL is also authorized to issue up to $300 million in unsecured
medium-term notes under an indenture dated December 1, 1996. This
indenture prohibits KCPL from issuing additional general mortgage
bonds while any unsecured notes are outstanding. We have not issued
any unsecured notes.
Interest Rate Swap and Cap Agreements
As of December 31, 1998, KCPL had entered into two interest rate swap
agreements to limit the interest rate on $30 million of long-term
debt. The swap agreements mature in 2001 and effectively fix the
interest rate to a weighted-average rate of 3.88%. Also, as of
December 31, 1998, KLT had entered into an interest rate swap
agreement to limit the interest rate on $40 million of its variable-
rate bank credit agreement. This swap agreement matures in 1999 and
effectively fixes the interest rate to a weighted-average rate of
5.77%.
These swap and cap agreements are with several highly rated financial
institutions and simply limit KCPL's exposure to increases in interest
rates. They do not subject KCPL to any material credit or market
risks. The fair value of these agreements is immaterial and is not
reflected in the financial statements. Although derivatives are an
integral part of KCPL's interest rate management, the effect on
interest expense for each of the last three years was less than $0.6
million.
Subsidiary Obligations
KLT has a bank credit agreement for $150 million collateralized by the
capital stock of KLT's direct subsidiaries. Under this revolving
credit agreement, KLT had borrowings at December 31, 1998, of $79
million. This debt is classified as current maturities since the
agreement expires in October 1999. The affordable housing notes are
collateralized by the affordable housing investments.
Scheduled Maturities
Long-term debt maturities for the years 1999 through 2003 are $164,
$67, $93, $39 and $29 million, respectively.
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11. JOINTLY-OWNED ELECTRIC UTILITY PLANTS
KCPL's share of jointly-owned electric utility plants as of December
31, 1998, is as follows (in millions of dollars):
Wolf Creek LaCygne Iatan
Unit Units Unit
KCPL's share 47% 50% 70%
Utility plant in service $ 1,347 $ 300 $ 245
Estimated accumulated depreciation
(production plant only) $ 427 $ 187 $ 145
Nuclear fuel, net $ 40 $ - $ -
KCPL's accredited capacity-megawatts 547 677 469
Each owner must fund its own portion of the plant's operating expenses
and capital expenditures. KCPL's share of direct expenses is included
in the appropriate operating expense classifications in the income
statement. Western Resources, Inc. (Western Resources) also owns a
47% share of the Wolf Creek unit and a 50% share of the LaCygne units
(see Note 12).
12. AMENDED AND RESTATED PLAN OF MERGER WITH WESTERN RESOURCES
KCPL began discussing a merger with Western Resources in 1996. A
merger agreement was entered into on February 7, 1997. In December
1997 KCPL canceled its previously scheduled special meeting of
shareholders to vote on the transaction because Western Resources
advised KCPL that its investment bankers, Salomon Smith Barney, had
indicated that it was unlikely that Salomon would be in a position to
issue a fairness opinion. During 1997 KCPL incurred and deferred $7
million of merger-related costs that were expensed in December 1997.
On March 18, 1998, KCPL and Western Resources entered into an Amended
and Restated Agreement and Plan of Merger (Amended Agreement). This
Amended Agreement provides for the combination of the regulated
electric utilities of KCPL and Western Resources into Westar Energy, a
new company, using purchase accounting. Westar Energy would be owned
approximately 80.1% by Western Resources and approximately 19.9% by
KCPL shareholders. KCPL shareholders would receive for each share of
KCPL's stock one share of Westar Energy common stock and a fraction of
a share of Western Resources common stock. The value of the
transaction to KCPL shareholders cannot be determined until closing.
If Western Resources average stock price for a twenty day period just
prior to closing is less than or equal to $29.78 either party can
terminate this Amended Agreement.
The Amended Agreement allows the KCPL Board discretion to make changes
(including increases) in the KCPL Common Stock dividend consistent
with past practice exercising good business judgment, but requires
KCPL to redeem all outstanding shares of cumulative preferred stock
before consummation of the proposed transactions.
If the Amended Agreement is terminated under certain circumstances and
KCPL, within two and one-half years following termination, agrees to
consummate a business combination with a third party that made a
proposal to combine before termination, a payment of $50 million will
be due Western Resources. Under certain circumstances, if KCPL
determines not to consummate its merger into Westar Energy due to its
inability to receive a favorable tax opinion from its legal counsel,
it must pay Western Resources $5 million. Western Resources will pay
KCPL $5 million to $35 million if the Amended Agreement is terminated
and all closing conditions are satisfied other than conditions
relating
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to Western Resources receiving a favorable tax opinion from its legal
counsel, favorable statutory approvals or an exemption from the Public
Utility Holding Company Act of 1935.
On July 30, 1998, KCPL's and Western Resources' shareholders approved
the Amended Agreement at special meetings of shareholders. However,
the transaction is still subject to several other closing conditions,
including:
- - approval by a number of regulatory and governmental agencies
(applications for approval filed during 1998),
- - receipt of the final orders from the various federal and state
regulators on terms and conditions which would not have a material
adverse effect on the benefits anticipated by Western Resources in
the merger,
- - reasonable satisfaction by Western Resources that it will be
exempt from all of the provisions of the Public Utility Holding
Company Act of 1935 other than Section 9(a)(2) thereof.
We cannot predict when or if the closing conditions will be met. If
the merger has not closed by December 31, 1999, either party may
terminate the Amended Agreement.
_______________________________________________
(UNAUDITED)
KCPL issued a joint proxy statement on June 9, 1998 that included
unaudited pro forma combined historical financial information as
of March 31, 1998 and for the year ended 1997. The following
excerpts are from that information:
Western Resources (after combining with KCPL)
- - Assets as of March 31, 1998...$11 billion
- - Basic earnings per common share for the year ended 1997...
$4.99 based on 103 million of average common shares outstanding.
In 1997, Western Resources recorded an approximate $519 million
net of tax gain on the sale of its investment in Tyco
International Ltd.
Westar Energy
- - Assets as of March 31, 1998...$8 billion
- - Basic earnings per common share for the year ended
1997...$0.35 based on 311 million of average common shares
outstanding.
Based on public information available, pro forma combined
historical financial information as of December 31, 1998 and for
the year then ended would reflect minor changes in total assets
and improvements in basic earnings per common share from the
above pro forma combined historical financial information if the
gain on the sale of the Tyco International Ltd. investment was
excluded.
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13. QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarter
1st 2nd 3rd 4th
(millions)
1998
Operating revenues $ 196 $ 240 $ 313 $ 190
Operating income 30 51 77 26
Net income 14 39 59 9
Basic and diluted earnings
per common share $ 0.22 $ 0.60 $ 0.94 $ 0.13
Quarter
1st 2nd 3rd 4th
(millions)
1997
Operating revenues $ 195 $ 215 $ 290 $ 196
Operating income 28 37 73 25
Net income (15) 24 58 10
Basic and diluted earnings
per common share $(0.26) $ 0.37 $ 0.92 $ 0.14
The quarterly data is subject to seasonal fluctuations with peak
periods occurring during the summer months.
In February 1997 KCPL paid UtiliCorp United Inc. (UtiliCorp) $53
million for agreeing to combine with Western Resources within two and
one-half years from the termination of KCPL's agreement to merge with
UtiliCorp. This agreement was terminated due to failure of KCPL
shareholders to approve the transaction with UtiliCorp. Additionally,
$7 million of merger-related costs were expensed in December 1997 (see
Note 12).
14. SUBSEQUENT EVENTS
On January 26, 1999, a stipulation and agreement among KCPL, the MPSC
staff and public counsel was filed with the MPSC. Subject to MPSC
approval, the stipulation and agreement would reduce annual revenues
from Missouri customers by about $15 million.
On February 17, 1999, an explosion occurred at KCPL's Hawthorn
Generating Station's 476-megawatt Unit No. 5. The boiler was not
operating at the time, and there were no injuries. Though
investigation of the cause of the explosion is still under way,
preliminary indications are that the damage was caused by an explosion
of accumulated gas in the boiler's firebox. KCPL has insurance
coverage for this type of event, with limits of $300 million. Work
has begun to dismantle the damaged boiler. We are evaluating several
alternatives regarding the replacement of the power generated by
Hawthorn Unit No. 5.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Kansas City Power & Light Company:
We have audited the consolidated financial statements of Kansas City
Power & Light Company and Subsidiaries listed in the index on page 49
of this Form 10-K. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Kansas City Power & Light Company and Subsidiaries as of
December 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
January 29, 1999, except with respect to the second
paragraph of Note 14, as to which the date is February 17, 1999
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
See General Note to Part III.
Executive Officers
See Part I, page 7, entitled "Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
See General Note to Part III.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
See General Note to Part III.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
General Note To Part III
Pursuant to General Instruction G to Form 10-K, the other
information required by Part III (Items 10, 11, and 12) of
Form 10-K is incorporated by reference to the Definitive
Proxy Statement filed with the Securities and Exchange
Commission on March 10, 1999, for KCPL's 1999 Annual Meeting
of Shareholders to be held on May 4, 1999.
48
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
Page
No.
Financial Statements ____
a. Consolidated Statements of Income and Consolidated 24
Statements of Retained Earnings for the years ended
December 31, 1998, 1997 and 1996
b. Consolidated Balance Sheets - December 31, 1998 and 1997 25
c. Consolidated Statements of Capitalization - December 31,
1998 and 1997 26
d. Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 27
e. Consolidated Statements of Comprehensive Income for the
years ended December 31, 1998, 1997 and 1996 28
f. Notes to Consolidated Financial Statements 29
g. Report of Independent Accountants 47
Exhibits
Exhibit
Number Description of Document
- ------ -----------------------
2 *Amended and Restated Agreement and Plan of
Merger (Exhibit 2 to Form 8-K dated March 23,
1998).
3-a *Restated Articles of Consolidation of KCPL
dated as of May 5, 1992 (Exhibit 4 to Registration
Statement, Registration No. 33-54196).
3-b By-laws of KCPL, as amended and in effect on
February 2, 1999.
4-a *General Mortgage and Deed of Trust dated as
of December 1, 1986, between KCPL and UMB Bank,
n.a. (formerly United Missouri Bank) of Kansas
City, N.A., Trustee (Exhibit 4-bb to Form 10-K for
the year ended December 31, 1986).
4-b *Third Supplemental Indenture dated as of
April 1, 1991, to Indenture dated as of December 1,
1986 (Exhibit 4-aq to Registration Statement,
Registration No. 33-42187).
4-c *Fourth Supplemental Indenture dated as of
February 15, 1992, to Indenture dated as of
December 1, 1986 (Exhibit 4-y to Form 10-K for year
ended December 31, 1991).
4-d *Fifth Supplemental Indenture dated as of
September 15, 1992, to Indenture dated as of
December 1, 1986 (Exhibit 4-a to Form 10-Q dated
September 30, 1992).
4-e *Sixth Supplemental Indenture dated as of
November 1, 1992, to Indenture dated as of
December 1, 1986 (Exhibit 4-z to Registration
Statement, Registration No. 33-54196).
49
<PAGE>
4-f *Seventh Supplemental Indenture dated as of
October 1, 1993, to Indenture dated as of December
1, 1986 (Exhibit 4-a to Form 10-Q dated
September 30, 1993).
4-g *Eighth Supplemental Indenture dated as of
December 1, 1993, to Indenture dated as of December
1, 1986 (Exhibit 4 to Registration Statement,
Registration No. 33-51799).
4-h *Ninth Supplemental Indenture dated as of
February 1, 1994, to Indenture dated as of December
1, 1986 (Exhibit 4-h to Form 10-K for year ended
December 31, 1993).
4-i *Tenth Supplemental Indenture dated as of
November 1, 1994, to Indenture dated as of December
1, 1986 (Exhibit 4-I to Form 10-K for year ended
December 31, 1994).
4-j *Resolution of Board of Directors Establishing
3.80% Cumulative Preferred Stock (Exhibit 2-R to
Registration Statement, Registration No. 2-40239).
4-k *Resolution of Board of Directors Establishing
4% Cumulative Preferred Stock (Exhibit 2-S to
Registration Statement, Registration No. 2-40239).
4-l *Resolution of Board of Directors Establishing
4.50% Cumulative Preferred Stock (Exhibit 2-T to
Registration Statement, Registration No. 2-40239).
4-m *Resolution of Board of Directors Establishing
4.20% Cumulative Preferred Stock (Exhibit 2-U to
Registration Statement, Registration No. 2-40239).
4-n *Resolution of Board of Directors Establishing
4.35% Cumulative Preferred Stock (Exhibit 2-V to
Registration Statement, Registration No. 2-40239).
4-o *Certificate of Designation of Board of
Directors Establishing the $50,000,000 Cumulative
No Par Preferred Stock, Auction Series A (Exhibit 4-
a to Form 10-Q dated March 31, 1992).
4-p *Indenture for Medium-Term Note Program dated
as of April 1, 1991, between KCPL and The Bank of
New York (Exhibit 4-bb to Registration Statement,
Registration No. 33-42187).
4-q *Indenture for Medium-Term Note Program dated
as of February 15, 1992, between KCPL and The Bank
of New York (Exhibit 4-bb to Registration
Statement, Registration No. 33-45736).
4-r *Indenture for Medium-Term Note Program dated
as of November 15, 1992, between KCPL and The Bank
of New York (Exhibit 4-aa to Registration
Statement, Registration No. 33-54196).
4-s *Indenture for Medium-Term Note Program dated
as of November 17, 1994, between KCPL and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Smith Barney Inc. (Exhibit 4-s to
Form 10-K for year ended December 31, 1994).
4-t *Indenture for Medium-Term Note Program dated
as of December 1, 1996, between KCPL and The Bank
of New York (Exhibit 4 to Registration Statement,
Registration No. 333-17285).
4-u *Amended and Restated Declaration of Trust of
KCPL Financing I dated April 15, 1997 (Exhibit 4-a
to Form 10-Q for quarter ended March 31, 1997).
4-v *Indenture dated as of April 1, 1997 between
the Company and The First National Bank of Chicago,
Trustee (Exhibit 4-b to Form 10-Q for quarter ended
March 31, 1997).
4-w *First Supplemental Indenture dated as of
April 1, 1997 to the Indenture dated as of April 1,
1997 between the Company and The First National
Bank of Chicago, Trustee (Exhibit 4-c to Form 10-Q
for quarter ended March 31, 1997).
4-x *Preferred Securities Guarantee Agreement
dated April 15, 1997 (Exhibit 4-d to Form 10-Q for
quarter ended March 31, 1997).
10-a *Copy of Wolf Creek Generating Station Ownership
Agreement between Kansas City Power & Light
Company, Kansas Gas and Electric Company
50
<PAGE>
and Kansas Electric Power Cooperative, Inc. (Exhibit
10-d to Form 10-K for the year ended December 31, 1981).
10-b *Copy of Receivables Purchase Agreement dated as of
September 27, 1989, between KCPL, Commercial
Industrial Trade-Receivables Investment Company and
Citicorp North America, Inc. (Exhibit 10-p to Form
10-K for year ended December 31, 1989).
10-c *Copy of Amendment to Receivables Purchase
Agreement dated as of August 8, 1991, between KCPL,
Commercial Industrial Trade-Receivables Investment
Company and Citicorp North America, Inc. (Exhibit
10-m to Form 10-K for year ended December 31,
1991).
10-d *Long-Term Incentive Plan (Exhibit 28 to
Registration Statement, Registration 33-42187).
10-e *Long- and Short-Term Incentive Compensation Plan,
dated January 1, 1997 (Exhibit 10-e to Form 10-K
for year ended December 31, 1996).
10-f *Copy of Indemnification Agreement entered into by
KCPL with each of its officers and directors
(Exhibit 10-f to Form 10-K for year ended
December 31, 1995).
10-g *Copy of Severance Agreement entered into by KCPL
with certain of its executive officers (Exhibit 10
to Form 10-Q dated June 30, 1993).
10-h *Copy of Amendment to Severance Agreement dated
January 15, 1996, entered into by KCPL with certain
of its executive officers (Exhibit 10-h to Form 10-
K dated December 31, 1995).
10-i *Copy of Amendment to Severance Agreement dated
January 1997 entered into by KCPL with certain of
its executive officers (Exhibit 10-I to Form 10-K
for year ended December 31, 1996).
10-j *Copy of Supplemental Executive Retirement and
Deferred Compensation Plan (Exhibit 10-h to Form
10-K for year ended December 31, 1993).
10-k *Copy of Railcar Lease dated as of April 15, 1994,
between Shawmut Bank Connecticut, National
Association, and KCPL (Exhibit 10 to Form 10-Q for
period ended June 30, 1994).
10-l *Copy of Amendment No. 2 to Receivables Purchase
Agreement between KCPL and Ciesco L.P. and Citicorp
North America, Inc. (Exhibit 10 to Form 10-Q for
period ended September 30, 1994).
10-m *Copy of Railcar Lease dated as of January 31,
1995, between First Security Bank of Utah, National
Association, and KCPL (Exhibit 10-o to Form 10-K
for year ended December 31, 1994).
10-n *Copy of Lease Agreement dated as of October 18,
1995, between First Security Bank of Utah, N.A.,
and KCPL (Exhibit 10 to Form 10-Q for period ended
September 30, 1995).
10-o *Credit Agreement dated as of August 11, 1998,
among Kansas City Power & Light Company, Certain
Lenders, The First National Bank of Chicago and
NationsBank, N.A. (Exhibit 10(a) to Form 10-Q for
period ended September 30, 1998).
10-p *Railcar Lease dated as of September 8, 1998, with
CCG Trust Corporation (Exhibit 10(b) to Form 10-Q
for period ended September 30, 1998).
12 Computation of Ratios of Earnings to Fixed Charges.
23-a Consent of Counsel.
23-b Consent of Independent Accountants-PricewaterhouseCoopers LLP.
24 Powers of Attorney.
27 Financial Data Schedules (filed electronically).
* Filed with the Securities and Exchange Commission as exhibits
to prior registration statements (except as otherwise noted) and
are incorporated herein by reference and made a part hereof. The
exhibit number and file number of the documents so filed, and
51
<PAGE>
incorporated herein by reference, are stated in parenthesis in
the description of such exhibit.
Copies of any of the exhibits filed with the Securities and
Exchange Commission in connection with this document may be
obtained from KCPL upon written request.
Reports on Form 8-K
No report on Form 8-K was filed during the fourth quarter
1998.
A report on Form 8-K was filed with the Securities and
Exchange Commission on January 27, 1999, with attached
Stipulation and Agreement entered into January 26, 1999, by
and among Kansas City Power & Light Company, Staff of the
Missouri Public Service Commission and Office of Public
Counsel.
A report on Form 8-K was filed the Securities and Exchange
Commission on February 19, 1999, with attached press release
reporting on an explosion that occurred at the Company's
Hawthorn Generating Station.
A report on Form 8-K was filed the Securities and Exchange
Commission on March 2, 1999, with attached press release
concerning the Company's Hawthorn Generating Station.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Kansas City, and State
of Missouri on the 16th day of March, 1999.
KANSAS CITY POWER & LIGHT COMPANY
By /s/Drue Jennings
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
Chairman of the Board and )
/s/ Drue Jennings Chief Executive Officer )
(Drue Jennings) (Principal Executive Officer) )
)
Executive Vice President-Chief )
/s/ Marcus Jackson Financial Officer (Principal )
(Marcus Jackson) Financial Officer) )
)
/s/ Neil A. Roadman Controller (Principal )
(Neil A. Roadman) Accounting Officer) )
)
Bernard J. Beaudoin* President and Director )
)
David L. Bodde* Director )
)
William H. Clark* Director ) March 16, 1999
)
Robert J. Dineen* Director )
)
Arthur J. Doyle* Director )
)
W. Thomas Grant II* Director )
)
George E. Nettels, Jr.* Director )
)
Linda Hood Talbott* Director )
)
Robert H. West* Director )
)
*By /s/ Drue Jennings
(Drue Jennings)
Attorney-in-Fact*
<PAGE>
Exhibit 3-b
KANSAS CITY POWER & LIGHT COMPANY
BY-LAWS
AS AMENDED FEBRUARY 2, 1999
<PAGE>
KANSAS CITY POWER & LIGHT COMPANY
BY-LAWS
ARTICLE I
Offices
Section 1. The registered office of the Company in the
State of Missouri shall be at 1201 Walnut, in Kansas City,
Jackson County, Missouri.
Section 2. The Company also may have offices at such other
places either within or without the State of Missouri as the
Board of Directors may from time to time determine or the
business of the Company may require.
ARTICLE II
Shareholders
Section 1. All meetings of the shareholders shall be held
at such place within or without the State of Missouri as may be
selected by the Board of Directors or Executive Committee, but if
the Board of Directors or Executive Committee shall fail to
designate a place for said meeting to be held, then the same
shall be held at the principal place of business of the Company.
Section 2. An annual meeting of the shareholders shall be
held on the first Tuesday of May in each year, if not a legal
holiday, and if a legal holiday, then on the first succeeding day
which is not a legal holiday, at ten o'clock in the forenoon, for
the purpose of electing directors of the Company and transacting
such other business as may properly be brought before the
meeting.
Section 3. Unless otherwise expressly provided in the
Restated Articles of Consolidation of the Company with respect to
the Cumulative Preferred Stock, Cumulative No Par Preferred Stock
or Preference Stock, special meetings of the shareholders may
only be called by the Chairman of the Board, by the President or
at the request in writing of a majority of the Board of
Directors. Special meetings of shareholders of the Company may
not be called by any other person or persons.
Section 4. Written or printed notice of each meeting of the
shareholders, annual or special, shall be given in the manner
provided in the corporation laws of the State of Missouri. In
case of a call for any special meeting, the notice shall state
the time, place and purpose of such meeting.
1
<PAGE>
Any notice of a shareholders' meeting sent by mail shall be
deemed to be delivered when deposited in the United States mail
with postage thereon prepaid addressed to the shareholder at his
address as it appears on the records of the Company.
In addition to the written or printed notice provided for in
the first paragraph of this Section, published notice of each
meeting of shareholders shall be given in such manner and for
such period of time as may be required by the laws of the State
of Missouri at the time such notice is required to be given.
Section 5. Attendance of a shareholder at any meeting shall
constitute a waiver of notice of such meeting except where a
shareholder attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting
is not lawfully called or convened.
Section 6. At least ten days before each meeting of the
shareholders, a complete list of the shareholders entitled to
vote at such meeting, arranged in alphabetical order with the
address of and the number of shares held by each, shall be
prepared by the officer having charge of the transfer book for
shares of the Company. Such list, for a period of ten days prior
to such meeting, shall be kept on file at the registered office
of the Company and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original share ledger
or transfer book, or a duplicate thereof kept in the State of
Missouri, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or
transfer book or to vote at any meeting of shareholders.
Failure to comply with the requirements of this Section
shall not affect the validity of any action taken at any such
meeting.
Section 7. Each outstanding share entitled to vote under
the provisions of the articles of consolidation of the Company
shall be entitled to one vote on each matter submitted at a
meeting of the shareholders. A shareholder may vote either in
person or by proxy executed in writing by the shareholder or by
his duly authorized attorney-in-fact. No proxy shall be valid
after eleven months from the date of its execution, unless
otherwise provided in the proxy.
At any election of directors of the Company, each holder of
outstanding shares of any class entitled to vote thereat shall
have the right to cast as many votes in the aggregate as shall
equal the number of shares of such class held, multiplied by the
number of directors to be elected by holders of shares of such
class, and may cast the whole number of votes, either in person
or by proxy, for one candidate, or distribute them among two or
more candidates as such holder shall elect.
2
<PAGE>
Section 8. At any meeting of shareholders, a majority of
the outstanding shares entitled to vote represented in person or
by proxy shall constitute a quorum for the transaction of
business, except as otherwise provided by statute or by the
articles of consolidation or by these By-laws. The holders of a
majority of the shares represented in person or by proxy and
entitled to vote at any meeting of the shareholders shall have
the right successively to adjourn the meeting to a specified date
not longer than ninety days after any such adjournment, whether
or not a quorum be present. The time and place to which any such
adjournment is taken shall be publicly announced at the meeting,
and no notice need be given of any such adjournment to
shareholders not present at the meeting. At any such adjourned
meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as
originally called.
Section 9. The vote for directors and the vote on any other
question that has been properly brought before the meeting in
accordance with these By-laws shall be by ballot. Each ballot
cast by a shareholder must state the name of the shareholder
voting and the number of shares voted by him and if such ballot
be cast by a proxy, it must also state the name of such proxy.
All elections and all other questions shall be decided by
plurality vote, unless the question is one on which by express
provision of the statutes or of the articles of consolidation or
of these By-laws a different vote is required, in which case such
express provision shall govern and control the decision of such
question.
Section 10. The Chairman of the Board, or in his absence
the President of the Company, shall convene all meetings of the
shareholders and shall act as chairman thereof. The Board of
Directors may appoint any shareholder to act as chairman of any
meeting of the shareholders in the absence of the Chairman of the
Board and the President, and in the case of the failure of the
Board so to appoint a chairman, the shareholders present at the
meeting shall elect a chairman who shall be either a shareholder
or a proxy of a shareholder.
The Secretary of the Company shall act as secretary of all
meetings of shareholders. In the absence of the Secretary at any
meeting of shareholders, the presiding officer may appoint any
person to act as secretary of the meeting.
Section 11. At any meeting of shareholders where a vote by
ballot is taken for the election of directors or on any
proposition, the person presiding at such meeting shall appoint
not less than two persons, who are not directors, as inspectors
to receive and canvass the votes given at such meeting and
certify the result to him. Subject to any statutory requirements
which may be applicable, all questions touching upon the
qualification of voters, the validity of proxies, and the
acceptance or rejection of votes shall be decided by the
inspectors. In case of a tie vote by the inspectors on any
question, the presiding officer shall decide the issue.
3
<PAGE>
Section 12. Unless otherwise provided by statute or by the
articles of consolidation, any action required to be taken by
shareholders may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the
subject matter thereof.
Section 13. No business may be transacted at an annual
meeting of shareholders, other than business that is either
(a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors
(or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction
of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual
meeting by any shareholder of the Company (i) who is a
shareholder of record on the date of the giving of the notice
provided for in this Section 13 and on the record date for the
determination of shareholders entitled to vote at such annual
meeting and (ii) who complies with the notice procedure set forth
in this Section 13.
In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a
shareholder, such shareholder must have given timely notice
thereof in proper written form to the Secretary of the Company.
To be timely, a shareholder's notice to the Secretary must
be delivered to or mailed and received at the principal executive
offices of the Company not less than sixty (60) days nor more
than ninety (90) days prior to the date of the annual meeting of
shareholders; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date
of the meeting is given to shareholders, notice by the
shareholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on
which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was
made, whichever first occurs.
To be in proper written form, a shareholder's notice to the
Secretary must set forth as to each matter such shareholder
proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at
the annual meeting, (ii) the name and record address of such
shareholder, (iii) the class or series and number of shares of
capital stock of the Company that are owned beneficially or of
record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any
other person or persons (including their names) in connection
with the proposal of such business by such shareholder and any
material interest of such shareholder in such business and (v) a
representation that such shareholder intends to appear in person
or by proxy at the annual meeting to bring such business before
the meeting.
No business shall be conducted at the annual meeting of
shareholders except business brought before the annual meeting in
accordance with the procedures set forth in this Section 13,
provided, however, that, once business has been properly brought
4
<PAGE>
before the annual meeting in accordance with such procedures,
nothing in this Section 13 shall be deemed to preclude discussion
by any shareholder of any such business. If the Chairman of an
annual meeting determines that business was not properly brought
before the annual meeting in accordance with the foregoing
procedures, the Chairman shall declare to the meeting that the
business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE III
Board of Directors
Section 1. The property, business and affairs of the
Company shall be managed and controlled by a Board of Directors
which may exercise all such powers of the Company and do all such
lawful acts and things as are not by statute or by the articles
of consolidation or by these By-laws directed or required to be
exercised or done by the shareholders.
Section 2. The Board of Directors shall consist of ten
directors who shall be elected at the annual meeting of the
shareholders. Each director shall be elected to serve until the
next annual meeting of the shareholders and until his successor
shall be elected and qualified. Directors need not be
shareholders.
Section 3. In case of the death or resignation of one or
more of the directors of the Company, a majority of the remaining
directors, though less than a quorum, may fill the vacancy or
vacancies until the successor or successors are elected at a
meeting of the shareholders. A director may resign at any time
and the acceptance of his resignation shall not be required in
order to make it effective.
Section 4. The Board of Directors may hold its meetings
either within or without the State of Missouri at such place as
shall be specified in the notice of such meeting.
Section 5. Regular meetings of the Board of Directors shall
be held as the Board of Directors by resolution shall from time
to time determine. The Secretary or an Assistant Secretary shall
give at least five days' notice of the time and place of each
such meeting to each director in the manner provided in Section 9
of this Article III. The notice need not specify the business to
be transacted.
Section 6. Special meetings of the Board of Directors shall
be held whenever called by the Chairman of the Board, the
President or three members of the Board and shall be held at such
place as shall be specified in the notice of such meeting.
Notice of such special meeting stating the place, date and hour
of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting,
or personally or by telephone, telecopy, telegram, telex or
similar means of communication on twenty-four (24) hours' notice,
or on such shorter notice as the person
5
<PAGE>
or persons calling such meeting may deem necessary or appropriate
in the circumstances.
Section 7. A majority of the full Board of Directors as
prescribed in these By-laws shall constitute a quorum for the
transaction of business. The act of the majority of the
directors present at a meeting at which a quorum is present shall
be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the directors, the directors present
may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be
present. Members of the Board of Directors or of any committee
designated by the Board of Directors may participate in a meeting
of the Board or committee by means of conference telephone or
similar communications equipment whereby all persons
participating in the meeting can hear each other, and
participation in a meeting in this manner shall constitute
presence in person at the meeting.
Section 8. The Board of Directors, by the affirmative vote
of a majority of the directors then in office, and irrespective
of any personal interest of any of its members, shall have
authority to establish reasonable compensation for directors.
Compensation for nonemployee directors may include both a stated
annual retainer and a fixed fee for attendance at each regular or
special meeting of the Board. Nonemployee members of special or
standing committees of the Board may be allowed a fixed fee for
attending committee meetings. Any director may serve the Company
in any other capacity and receive compensation therefor. Each
director may be reimbursed for his expenses, if any, in attending
regular and special meetings of the Board and committee meetings.
Section 9. Whenever under the provisions of the statutes or
of the articles of consolidation or of these By-laws, notice is
required to be given to any director, it shall not be construed
to require personal notice, but such notice may be given by
telephone, telecopy, telegram, telex or similar means of
communication addressed to such director at such address as
appears on the books of the Company, or by mail by depositing the
same in a post office or letter box in a postpaid, sealed wrapper
addressed to such director at such address as appears on the
books of the Company. Such notice shall be deemed to be given at
the time when the same shall be thus telephoned, telecopied,
telegraphed or mailed.
Attendance of a director at any meeting shall constitute a
waiver of notice of such meeting except where a director attends
a meeting for the express purpose of objecting to the transaction
of any business because the meeting is not lawfully called or
convened.
Section 10. The Board of Directors may by resolution provide
for an Executive Committee of said Board, which shall serve at
the pleasure of the Board of Directors and, during the intervals
between the meetings of said Board, shall possess and may
exercise any or all of the powers of the Board of Directors in
the management of the business and affairs of the corporation,
except with respect to any matters which, by resolution of the
Board of Directors, may from time to time be reserved for action
by said Board.
6
<PAGE>
Section 11. The Executive Committee, if established by the
Board, shall consist of the Chief Executive Officer of the
Company and two or more additional directors, who shall be
elected by the Board of Directors to serve at the pleasure of
said Board until the first meeting of the Board of Directors
following the next annual meeting of shareholders and until their
successors shall have been elected. Vacancies in the Committee
shall be filled by the Board of Directors.
Section 12. Meetings of the Executive Committee shall be
held whenever called by the chairman or by a majority of the
members of the committee, and shall be held at such time and
place as shall be specified in the notice of such meeting. The
Secretary or an Assistant Secretary shall give at least one day's
notice of the time, place and purpose of each such meeting to
each committee member in the manner provided in Section 9 of this
Article III, provided, that if the meeting is to be held outside
of Kansas City, Missouri, at least three days' notice thereof
shall be given.
Section 13. At all meetings of the Executive Committee, a
majority of the committee members shall constitute a quorum and
the unanimous act of all the members of the committee present at
a meeting where a quorum is present shall be the act of the
Executive Committee. All action by the Executive Committee shall
be reported to the Board of Directors at its meeting next
succeeding such action.
Section 14. In addition to the Executive Committee provided
for by these By-laws, the Board of Directors, by resolution
adopted by a majority of the whole Board of Directors, (i) shall
designate, as standing committees, an Audit Committee and a
Nominating & Compensation Committee, each to consist of three or
more nonemployee directors, and (ii) may designate one or more
special committees, each consisting of two or more directors.
Each standing or special committee shall have and may exercise so
far as may be permitted by law and to the extent provided in such
resolution or resolutions or in these By-laws, the
responsibilities of the business and affairs of the corporation.
The Board of Directors may, at its discretion, appoint qualified
directors as alternate members of a standing or special committee
to serve in the temporary absence or disability of any member of
a committee. Except where the context requires otherwise,
references in these By-laws to the Board of Directors shall be
deemed to include the Executive Committee, a standing committee
or a special committee of the Board of Directors duly authorized
and empowered to act in the premises.
Section 15. Each standing or special committee shall record
and keep a record of all its acts and proceedings and report the
same from time to time to the Board of Directors.
Section 16. Regular meetings of any standing or special
committee, of which no notice shall be necessary, shall be held
at such times and in such places as shall be fixed by majority of
the committee. Special meetings of a committee shall be held at
the request of any member of the committee. Notice of each
special meeting of a committee
7
<PAGE>
shall be given not later than one day prior to the date on which
the special meeting is to be held. Notice of any special meeting
need not be given to any member of a committee, if waived by him
in writing or by telegraph before or after the meeting; and any
meeting of a committee shall be a legal meeting without notice
thereof having been given, if all the members of the committee
shall be present.
Section 17. A majority of any committee shall constitute a
quorum for the transaction of business, and the act of a majority
of those present, by telephone conference call or otherwise, at
any meeting at which a quorum is present shall be the act of the
committee. Members of any committee shall act only as a
committee and the individual members shall have no power as such.
Section 18. The members or alternates of any standing or
special committee shall serve at the pleasure of the Board of
Directors.
Section 19. If all the directors severally or collectively
shall consent in writing to any action which is required to be or
may be taken by the directors, such consents shall have the same
force and effect as a unanimous vote of the directors at a
meeting duly held. The Secretary shall file such consents with
the minutes of the meetings of the Board of Directors.
Section 20. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as
directors of the Company, except as may be otherwise provided in
the Restated Articles of Consolidation of the Company with
respect to the right of holders of Preferred Stock to nominate
and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of shareholders
(a) by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (b) by any shareholder of the
Company (i) who is a shareholder of record on the date of the
giving of the notice provided for in this Section 20 and on the
record date for the determination of shareholders entitled to
vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 20.
In addition to any other applicable requirements, for a
nomination to be made by a shareholder, such shareholder must
have given timely notice thereof in proper written form to the
Secretary of the Company.
To be timely, a shareholder's notice to the Secretary must
be delivered to or mailed and received at the principal executive
offices of the Company not less than sixty (60) days nor more
than ninety (90) days prior to the date of the annual meeting of
shareholders; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date
of the meeting is given to shareholders, notice by the
shareholder in order to be timely must be so received not later
than the close of business on the tenth (10) day following the
day on which such notice of the date of the annual
8
<PAGE>
meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, a shareholder's notice to the
Secretary must set forth (a) as to each person whom the
shareholder proposes to nominate for election as a director
(i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital
stock of the Company that are owned beneficially or of record by
the person and (iv) any other information relating to the person
that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the shareholder giving the notice
(i) the name and record of such shareholder, (ii) the class or
series and number of shares of capital stock of the Company that
are owned beneficially or of record by such shareholder, (iii) a
description of all arrangements or understandings between such
shareholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the
nomination(s) are to be made by such shareholder, (iv) a
representation that such shareholder intends to appear in person
or by proxy at the meeting to nominate the persons named in the
notice and (v) any other information relating to such shareholder
that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a
written consent of each proposed nominee to being name as a
nominee and to serve as a director if elected.
No person shall be eligible for election as a director of
the Company unless nominated in accordance with the procedures
set forth in this Section 20. If the Chairman of the annual
meeting determines that a nomination was not made in accordance
with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective
nomination shall be disregarded.
ARTICLE IV
Officers
Section 1. The officers of the Company shall include a
Chairman of the Board, a President, one or more Vice Presidents,
a Secretary, one or more Assistant Secretaries, a Treasurer and
one or more Assistant Treasurers, all of whom shall be appointed
by the Board of Directors. Any one person may hold two or more
offices except that the offices of President and Secretary may
not be held by the same person.
9
<PAGE>
Section 2. The officers of the Company shall be appointed
annually by the Board of Directors. The office of Chairman of
the Board may or may not be filled, as may be deemed advisable by
the Board of Directors.
Section 3. The Board of Directors may from time to time
appoint such other officers as it shall deem necessary or
expedient, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as the Board of
Directors or the Chief Executive Officer may from time to time
determine.
Section 4. The officers of the Company shall hold office
until their successors shall be chosen and shall qualify. Any
officer appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the whole board.
If the office of any officer becomes vacant for any reason, or if
any new office shall be created, the vacancy may be filled by the
Board of Directors.
Section 5. The salaries of all officers of the Company
shall be fixed by the Board of Directors.
ARTICLE V
Powers and Duties of Officers
Section 1. The Board of Directors shall designate the Chief
Executive Officer of the Company, who may be either the Chairman
of the Board or the President. The Chief Executive Officer shall
have general and active management of and exercise general
supervision of the business and affairs of the Company, subject,
however, to the right of the Board of Directors, or the Executive
Committee acting in its stead, to delegate any specific power to
any other officer or officers of the Company, and the Chief
Executive Officer shall see that all orders and resolutions of
the Board of Directors and the Executive Committee are carried
into effect. During such times when neither the Board of
Directors nor the Executive Committee is in session, the Chief
Executive Officer of the Company shall have and exercise full
corporate authority and power to manage the business and affairs
of the Company (except for matters required by law, the By-laws
or the articles of consolidation to be exercised by the
shareholders or Board itself or as may otherwise be specified by
orders or resolutions of the Board) and the Chief Executive
Officer shall take such actions, including executing contracts or
other documents, as he deems necessary or appropriate in the
ordinary course of the business and affairs of the Company. The
Vice Presidents and other authorized persons are authorized to
take actions which are (i) routinely required in the conduct of
the Company's business or affairs, including execution of
contracts and other documents incidental thereto, which are
within their respective areas of assigned responsibility, and
(ii) within the ordinary course of the Company's business or
affairs as may be delegated to them respectively by the Chief
Executive Officer.
10
<PAGE>
Section 2. The Chairman of the Board shall preside at all
meetings of the shareholders and at all meetings of the Board of
Directors, and shall perform such other duties as the Board of
Directors shall from time to time prescribe, including, if so
designated by the Board of Directors, the duties of Chief
Executive Officer.
Section 3. The President, if not designated Chief Executive
Officer, shall perform such duties and exercise such powers as
shall be assigned to him from time to time by the Board of
Directors or the Chief Executive Officer. In the absence of the
Chairman of the Board, or if the position of Chairman of the
Board be vacant, the President shall preside at all meetings of
the shareholders and at all meetings of the Board of Directors.
Section 4. The Vice Presidents shall perform such duties
and exercise such powers as shall be assigned to them from time
to time by the Board of Directors or the Chief Executive Officer.
Section 5. The Secretary shall attend all meetings of the
shareholders, the Board of Directors and the Executive Committee,
and shall keep the minutes of such meetings. He shall give, or
cause to be given, notice of all meetings of the shareholders,
the Board of Directors and the Executive Committee, and shall
perform such other duties as may be prescribed by the Board of
Directors or the Chief Executive Officer. He shall be the
custodian of the seal of the Company and shall affix the same to
any instrument requiring it and, when so affixed, shall attest it
by his signature. He shall, in general, perform all duties
incident to the office of secretary.
Section 6. The Assistant Secretaries shall perform such of
the duties and exercise such of the powers of the Secretary as
shall be assigned to them from time to time by the Board of
Directors or the Chief Executive Officer or the Secretary, and
shall perform such other duties as the Board of Directors or the
Chief Executive Officer shall from time to time prescribe.
Section 7. The Treasurer shall have the custody of all
moneys and securities of the Company. He is authorized to
collect and receive all moneys due the Company and to receipt
therefor, and to endorse in the name of the Company and on its
behalf when necessary or proper all checks, drafts, vouchers or
other instruments for the payment of money to the Company and to
deposit the same to the credit of the Company in such
depositaries as may be designated by the Board of Directors. He
is authorized to pay interest on obligations and dividends on
stocks of the Company when due and payable. He shall, when
necessary or proper, disburse the funds of the Company, taking
proper vouchers for such disbursements. He shall render to the
Board of Directors and the Chief Executive Officer, whenever they
may require it, an account of all his transactions as Treasurer
and of the financial condition of the Company. He shall perform
such other duties as may be prescribed by the Board of Directors
or the Chief Executive Officer. He shall, in general, perform
all duties incident to the office of treasurer.
11
<PAGE>
Section 8. The Assistant Treasurers shall perform such of
the duties and exercise such of the powers of the Treasurer as
shall be assigned to them from time to time by the Board of
Directors or the Chief Executive Officer or the Treasurer, and
shall perform such other duties as the Board of Directors or the
Chief Executive Officer shall from time to time prescribe.
Section 9. The Board of Directors may, by resolution,
require any officer to give the Company a bond (which shall be
renewed every six years) in such sum and with such surety or
sureties as shall be satisfactory to the Board for the faithful
performance of the duties of his office and for the restoration
to the Company, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control and belonging to the Company.
Section 10. In the case of absence or disability or refusal
to act of any officer of the Company, other than the Chairman of
the Board, the Chief Executive Officer may delegate the powers
and duties of such officer to any other officer or other person
unless otherwise ordered by the Board of Directors.
Section 11. The Chairman of the Board, the President, the
Vice Presidents and any other person duly authorized by
resolution of the Board of Directors shall severally have power
to execute on behalf of the Company any deed, bond, indenture,
certificate, note, contract or other instrument authorized or
approved by the Board of Directors.
Section 12. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, the President or any Vice
President of the Company (a) shall have full power and authority
to attend and to act and vote, in the name and on behalf of this
Company, at any meeting of shareholders of any corporation in
which this Company may hold stock, and at any such meeting shall
possess and may exercise any and all of the rights and powers
incident to the ownership of such stock, and (b) shall have full
power and authority to execute, in the name and on behalf of this
Company, proxies authorizing any suitable person or persons to
act and to vote at any meeting of shareholders of any corporation
in which this Company may hold stock, and at any such meeting the
person or persons so designated shall possess and may exercise
any and all of the rights and powers incident to the ownership of
such stock.
ARTICLE VI
Certificates of Stock
Section 1. The Board of Directors shall provide for the
issue, transfer and registration of the certificates representing
the shares of capital stock of the Company, and shall appoint the
necessary officers, transfer agents and registrars for that
purpose.
12
<PAGE>
Section 2. Until otherwise ordered by the Board of
Directors, stock certificates shall be signed by the President or
a Vice President and by the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer, and sealed with the
seal of the Company. Such seal may be facsimile, engraved or
printed. In case any officer or officers who shall have signed,
or whose facsimile signature or signatures shall have been used
on, any stock certificate or certificates shall cease to be such
officer or officers of the Company, whether because of death,
resignation or otherwise, before such certificate or certificates
shall have been delivered by the Company, such certificate or
certificates may nevertheless be issued by the Company with the
same effect as if the person or persons who signed such
certificate or certificates or whose facsimile signature or
signatures shall have been used thereon had not ceased to be such
officer or officers of the Company.
Section 3. Transfers of stock shall be made on the books of
the Company only by the person in whose name such stock is
registered or by his attorney lawfully constituted in writing,
and unless otherwise authorized by the Board of Directors only on
surrender and cancellation of the certificate transferred. No
stock certificate shall be issued to a transferee until the
transfer has been made on the books of the Company.
Section 4. The Company shall be entitled to treat the
person in whose name any share of stock is registered as the
owner thereof, for all purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall
have notice thereof, except as otherwise expressly provided by
the laws of Missouri.
Section 5. In case of the loss or destruction of any
certificate for shares of the Company, a new certificate may be
issued in lieu thereof under such regulations and conditions as
the Board of Directors may from time to time prescribe.
ARTICLE VII
Closing of Transfer Books
The Board of Directors shall have power to close the stock
transfer books of the Company for a period not exceeding seventy
days preceding the date of any meeting of shareholders or the
date for payment of any dividend or the date for the allotment of
rights or the date when any change or conversion or exchange of
shares shall go into effect; provided, however, that in lieu of
closing the stock transfer books as aforesaid, the Board of
Directors may fix in advance a date, not exceeding seventy days
preceding the date of any meeting of shareholders, or the date
for the payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or exchange of
shares shall go into effect, as a record date for the
determination of the shareholders entitled to notice of, and to
vote at, any such meeting, and any adjournment thereof, or
entitled to receive payment of any such dividend, or to any such
allotment of rights, or to
13
<PAGE>
exercise the rights in respect of any such change, conversion or
exchange of shares, and in such case such shareholders and only
such shareholders as shall be shareholders of record on the date
of closing the transfer books or on the record date so fixed
shall be entitled to notice of, and to vote at, such meeting and
any adjournment thereof, or to receive payment of such dividend,
or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Company after such date of closing of
the transfer books or such record date fixed as aforesaid.
ARTICLE VIII
Inspection of Books
Section 1. A shareholder shall have the right to inspect
books of the Company only to the extent such right may be
conferred by law, by the articles of consolidation, by the
By-laws or by resolution of the Board of Directors.
Section 2. Any shareholder desiring to examine books of the
Company shall present a demand to that effect in writing to the
President or the Secretary or the Treasurer of the Company. Such
demand shall state:
(a) the particular books which he desires to examine;
(b) the purpose for which he desires to make the
examination;
(c) the date on which the examination is desired;
(d) the probable duration of time the examination will
require; and
(e) the names of the persons who will be present at the
examination.
Within three days after receipt of such demand, the President or
the Secretary or the Treasurer shall, if the shareholder's
purpose be lawful, notify the shareholder making the demand of
the time and place the examination may be made.
Section 3. The right to inspect books of the Company may be
exercised only at such times as the Company's registered office
is normally open for business and may be limited to four hours on
any one day.
Section 4. The Company shall not be liable for expenses
incurred in connection with any inspection of its books.
14
<PAGE>
ARTICLE IX
Corporate Seal
The corporate seal of the Company shall have inscribed
thereon the name of the Company and the words "Corporate Seal",
"Missouri" and "1922".
ARTICLE X
Fiscal Year
Section 1. The fiscal year of the Company shall be the
calendar year.
Section 2. As soon as practicable after the close of each
fiscal year, the Board of Directors shall cause a report of the
business and affairs of the Company to be made to the
shareholders.
ARTICLE XI
Waiver of Notice
Whenever by statute or by the articles of consolidation or
by these By-laws any notice whatever is required to be given, a
waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XII
Indemnification by the Company
[Deleted].
15
<PAGE>
ARTICLE XIII
Amendments
The Board of Directors may make, alter, amend or repeal
By-laws of the Company by a majority vote of the whole Board of
Directors at any regular meeting of the Board or at any special
meeting of the Board if notice thereof has been given in the
notice of such special meeting. Nothing in this Article shall be
construed to limit the power of the shareholders to make, alter,
amend or repeal By-laws of the Company at any annual or special
meeting of shareholders by a majority vote of the shareholders
present and entitled to vote at such meeting, provided a quorum
is present.
16
Exhibit 12
<TABLE>
KANSAS CITY POWER & LIGHT COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<CAPTION>
1998 1997 1996 1995 1994
(Thousands)
<S> <C> <C> <C> <C> <C>
Net income $120,722 $76,560 $108,171 $122,586 $104,775
Add:
Taxes on income 32,800 8,079 31,753 66,803 66,377
Kansas City earnings tax 864 392 558 958 524
Total taxes on income 33,664 8,471 32,311 67,761 66,901
Interest on value of
leased property 8,482 8,309 8,301 8,269 6,732
Interest on long-term debt 57,012 60,298 53,939 52,184 43,962
Interest on short-term debt 295 1,382 1,251 1,189 1,170
Mandatorily redeemable
Preferred Securities 12,450 8,853 0 0 0
Other interest expense
and amortization 4,457 3,990 4,840 3,112 4,128
Total fixed charges 82,696 82,832 68,331 64,754 55,992
Earnings before taxes
on income and fixed
charges $237,082 $167,863 $208,813 $255,101 $227,668
Ratio of earnings to
fixed charges 2.87 2.03 3.06 3.94 4.07
</TABLE>
<PAGE>
Exhibit 23-a
CONSENT OF COUNSEL
As Senior Vice President-Corporate Services,
Corporate Secretary and Chief Legal Officer of Kansas
City Power & Light Company, I have reviewed the
statements as to matters of law and legal conclusions
in the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, and consent to the
incorporation by reference of such statements in the
Company's previously-filed Form S-3 Registration
Statements (Registration No. 33-51799, Registration
No. 333-17285, and Registration No. 333-18139) and Form
S-8 Registration Statements (Registration No. 33-45618
and Registration No. 333-49353).
/s/Jeanie Sell Latz
Jeanie Sell Latz
Kansas City, Missouri
March 16, 1999
<PAGE>
Exhibit 23-b
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Kansas City Power & Light Company on Form S-3 (File Nos.
33-51799, 333-17285 and 333-18139) and Form S-8 (File Nos. 33-45618
and 333-49353) of our report dated January 29, 1999, except with
respect to the second paragraph of Note 14, as to which the date is
February 17, 1999, on our audits of the consolidated financial
statements of Kansas City Power & Light Company and Subsidiaries as of
December 31, 1998 and 1997, and for the years ended December 31, 1998,
1997, and 1996, which report is included in this Annual Report on Form
10-K.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
March 15, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 2nd day of February 1999.
/s/Bernard J. Beaudoin
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 2nd day of February 1999, before me the
undersigned, a Notary Public, personally appeared
Bernard J. Beaudoin, to be known to be the person
described in and who executed the foregoing instrument,
and who, being by me first duly sworn, acknowledged
that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 2nd day of February 1999.
/s/David L. Bodde
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 2nd day of February 1999, before me the
undersigned, a Notary Public, personally appeared David
L. Bodde, to be known to be the person described in and
who executed the foregoing instrument, and who, being
by me first duly sworn, acknowledged that he executed
the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 2nd day of February 1999.
/s/William H. Clark
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 2nd day of February 1999, before me the
undersigned, a Notary Public, personally appeared
William H. Clark, to be known to be the person
described in and who executed the foregoing instrument,
and who, being by me first duly sworn, acknowledged
that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 2nd day of February 1999.
/s/Robert J. Dineen
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 2nd day of February 1999, before me the
undersigned, a Notary Public, personally appeared
Robert J. Dineen, to be known to be the person
described in and who executed the foregoing instrument,
and who, being by me first duly sworn, acknowledged
that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 2nd day of February 1999.
/s/Arthur J. Doyle
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 2nd day of February 1999, before me the
undersigned, a Notary Public, personally appeared
Arthur J. Doyle, to be known to be the person described
in and who executed the foregoing instrument, and who,
being by me first duly sworn, acknowledged that he
executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 2nd day of February 1999.
/s/W. Thomas Grant II
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 2nd day of February 1999, before me the
undersigned, a Notary Public, personally appeared W.
Thomas Grant II, to be known to be the person described
in and who executed the foregoing instrument, and who,
being by me first duly sworn, acknowledged that he
executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 2nd day of February 1999.
/s/George E. Nettels, Jr.
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 2nd day of February 1999, before me the
undersigned, a Notary Public, personally appeared
George E. Nettels, Jr., to be known to be the person
described in and who executed the foregoing instrument,
and who, being by me first duly sworn, acknowledged
that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, her true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 2nd day of February 1999.
/s/Linda H. Talbott
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 2nd day of February 1999, before me the
undersigned, a Notary Public, personally appeared Linda
H. Talbott, to be known to be the person described in
and who executed the foregoing instrument, and who,
being by me first duly sworn, acknowledged that she
executed the same as her free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 2nd day of February 1999.
/s/Robert H. West
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 2nd day of February 1999, before me the
undersigned, a Notary Public, personally appeared
Robert H. West, to be known to be the person described
in and who executed the foregoing instrument, and who,
being by me first duly sworn, acknowledged that he
executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
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<FISCAL-YEAR-END> Dec-31-1998
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