FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7324
KANSAS GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
KANSAS 48-1093840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 208
WICHITA, KANSAS 67201
(Address of Principal Executive Offices)
316/261-6611
(Registrant's telephone number, including area code)
Indicated 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 11, 2000
Common Stock (No par value) 1,000 Shares
Registrant meets the conditions of General Instruction H(1)(a) and (b) to Form
10-Q and is therefore filing this form with a reduced disclosure format.
<PAGE>
KANSAS GAS AND ELECTRIC COMPANY
INDEX
Page
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5
Statements of Shareholder's Equity 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
March 31, December 31,
2000 1999
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 37 $ 37
Accounts receivable (net) . . . . . . . . . . . . . . . . 58,910 67,751
Advances to parent company (net). . . . . . . . . . . . . 131,060 111,206
Inventories and supplies (net). . . . . . . . . . . . . . 44,638 46,179
Prepaid expenses and other. . . . . . . . . . . . . . . . 9,358 19,103
Total Current Assets. . . . . . . . . . . . . . . . . . 244,003 244,276
PROPERTY, PLANT AND EQUIPMENT (NET) . . . . . . . . . . . . 2,473,991 2,480,696
OTHER ASSETS:
Regulatory assets . . . . . . . . . . . . . . . . . . . . 250,070 251,518
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 89,259 87,339
Total Other Assets. . . . . . . . . . . . . . . . . . . 339,329 338,857
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $3,057,323 $3,063,829
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 73,824 $ 76,995
Accrued liabilities . . . . . . . . . . . . . . . . . . . 47,405 28,052
Accrued income taxes. . . . . . . . . . . . . . . . . . . 77,300 70,878
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,110 6,616
Total Current Liabilities . . . . . . . . . . . . . . . 205,639 182,541
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . . . . . . . . . 684,273 684,271
Deferred income taxes and investment tax credits. . . . . 771,023 774,961
Deferred gain from sale-leaseback . . . . . . . . . . . . 195,165 198,123
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 97,750 101,428
Total Long-term Liabilities . . . . . . . . . . . . . . 1,748,211 1,758,783
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, without par value,
authorized and issued 1,000 shares . . . . . . . . . 1,065,634 1,065,634
Retained earnings . . . . . . . . . . . . . . . . . . . . 37,839 56,871
Total Shareholder's Equity. . . . . . . . . . . . . . . 1,103,473 1,122,505
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY . . . . . . . . $3,057,323 $3,063,829
The Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
SALES . . . . . . . . . . . . . . . . . . . . . . . . . $ 149,913 $ 133,910
COST OF SALES . . . . . . . . . . . . . . . . . . . . . 38,262 25,749
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . 111,651 108,161
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . 48,433 39,137
Depreciation and amortization . . . . . . . . . . . . 26,216 25,057
Selling, general and administrative expense . . . . . 14,935 13,795
Total Operating Expenses. . . . . . . . . . . . . 89,584 77,989
INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . 22,067 30,172
OTHER INCOME (EXPENSE). . . . . . . . . . . . . . . . . (1,254) (1,255)
EARNINGS BEFORE INTEREST AND TAXES. . . . . . . . . . . 20,813 28,917
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . 11,533 11,453
Interest expense on other . . . . . . . . . . . . . . 828 809
Total Interest Expense. . . . . . . . . . . . . . 12,361 12,262
EARNINGS BEFORE INCOME TAXES. . . . . . . . . . . . . . 8,452 16,655
INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . 2,484 3,750
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 5,968 $ 12,905
The Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 5,968 $ 12,905
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 26,216 25,057
Amortization of gain from sale-leaseback. . . . . . . . . . (2,957) (2,958)
Changes in working capital items:
Accounts receivable (net) . . . . . . . . . . . . . . . . 8,841 8,754
Inventories and supplies (net). . . . . . . . . . . . . . 1,542 (575)
Prepaid expenses and other. . . . . . . . . . . . . . . . 9,745 7,862
Accounts payable. . . . . . . . . . . . . . . . . . . . . (3,171) (21,073)
Accrued liabilities . . . . . . . . . . . . . . . . . . . 19,353 15,745
Accrued income taxes. . . . . . . . . . . . . . . . . . . 6,422 8,252
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 494 384
Changes in other assets and liabilities . . . . . . . . . . (17,503) (7,636)
Net cash flows from operating activities. . . . . . . . 54,950 46,717
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property plant and equipment (net) . . . . . . (10,096) (12,266)
Net cash flows (used in) investing activities . . . . . (10,096) (12,266)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . - -
Advances to parent company (net). . . . . . . . . . . . . . (19,854) (9,429)
Retirements of long-term debt . . . . . . . . . . . . . . . - (20)
Dividends to parent company . . . . . . . . . . . . . . . . (25,000) (25,000)
Net cash flows (used in) financing activities. . . . . . (44,854) (34,449)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . - 2
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . . . . . . 37 41
End of period . . . . . . . . . . . . . . . . . . . . . . . $ 37 $ 43
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 5,895 $ 6,078
Income taxes . . . . . . . . . . . . . . . . . . . . . . . - -
The Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . $1,065,634 $1,065,634
Retained Earnings:
Beginning balance . . . . . . . . . . . . . . . . . . . . . 56,871 72,610
Net income. . . . . . . . . . . . . . . . . . . . . . . . . 5,968 12,905
Dividends to parent company . . . . . . . . . . . . . . . . (25,000) (25,000)
Ending balance. . . . . . . . . . . . . . . . . . . . . . . . 37,839 60,515
Total Shareholder's Equity. . . . . . . . . . . . . . . . . . $1,103,473 $1,126,149
The Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
KANSAS GAS AND ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Kansas Gas and Electric Company (the company,
KGE) is a rate-regulated electric utility and wholly-owned subsidiary of Western
Resources, Inc. (Western Resources). The company is engaged principally in the
production, purchase, transmission, distribution, and sale of electricity. The
company serves approximately 290,000 electric customers in southeastern Kansas.
At March 31, 2000, the company had no employees. All employees are provided by
the company's parent, Western Resources, which allocates costs to the company.
The company owns 47% of Wolf Creek Nuclear Operating Corporation (WCNOC),
the operating company for Wolf Creek Generating Station (Wolf Creek). The
company records its proportionate share of all transactions of WCNOC as it does
other jointly-owned facilities.
The company's unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and in accordance with the instructions to
Form 10-Q. Accordingly, certain information and footnote disclosures normally
included in financial statements presented in accordance with GAAP have been
condensed or omitted. These financial statements and notes should be read in
conjunction with the financial statements and the notes included in the
company's 1999 Annual Report on Form 10-K. The accounting and rates of the
company are subject to requirements of the Kansas Corporation Commission (KCC)
and the Federal Energy Regulatory Commission (FERC).
In management's opinion, all adjustments, consisting only of normal
recurring adjustments considered necessary for a fair presentation of the
financial statements, have been included. The results of operations for the
three months ended March 31, 2000, are not necessarily indicative of the results
to be expected for the full year.
New Pronouncements: In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133, as
amended, is effective for fiscal years beginning after June 15, 2000. SFAS 133
cannot be applied retroactively. The company is currently evaluating commodity
contracts and financial instruments to determine what, if any, effect adopting
SFAS 133 might have on its financial statements. The company has not yet
quantified all effects of adopting SFAS 133 on its financial statements;
however, SFAS 133 could increase volatility in earnings and other comprehensive
income. The company plans to adopt SFAS 133 as of January 1, 2001.
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
<PAGE>
2. CORPORATE RESTRUCTURING
On March 28, 2000, Western Resources' board of directors approved the
separation of its electric business (including the company) and non-electric
utility businesses. The separation is currently expected to be effected through
an offer to be made to shareholders prior to year end 2000. The offer will be
described in materials furnished to Western Resources' shareholders. The impact
on Western Resources' (and the company's) financial position and operating
results cannot be determined until the final details of the offer are
determined. Western Resources' goal is to complete the separation in the fourth
quarter of 2000, but no assurance can be given that the separation will be
completed by that time or at all.
3. INCOME TAXES
Total income tax expense included in the Statements of Income reflects the
Federal statutory rate of 35%. The Federal statutory rate produces effective
income tax rates of 29% for the three month period ended March 31, 2000, and 23%
for the same period of 1999. The effective income tax rates vary from the
Federal statutory rate due to permanent differences, including the amortization
of investment tax credits and benefits from corporate-owned life insurance.
4. RATE MATTERS AND REGULATION
KCC Proceedings: On March 16, 2000, the Kansas Industrial Consumers (KIC),
an organization of commercial and industrial users of electricity in Kansas,
filed a complaint with the KCC requesting an investigation of Western Resources'
and the company's rates. The KIC alleges that these rates are not based on
current costs. Western Resources filed a motion to dismiss the complaint on
April 24, 2000. Western Resources and the company will continue to oppose this
request vigorously.
FERC Proceeding: In September 1999, the City of Wichita filed a complaint
with the FERC against the company, alleging improper affiliate transactions
between the company and KPL, a division of Western Resources. The City of
Wichita is asking that FERC equalize the generation costs between the company
and KPL, in addition to other matters. FERC has issued an order setting this
matter for hearing and has referred the case to a settlement judge. The hearing
has been suspended pending settlement discussions between the parties. The
company believes that the City of Wichita's complaint is without merit and
intends to defend against it vigorously.
5. COMMITMENTS AND CONTINGENCIES
Manufactured Gas Sites: The company has been associated with three former
manufactured gas sites located in Kansas which may contain coal tar and other
potentially harmful materials. The company and the Kansas Department of Health
and Environment (KDHE) entered into a consent agreement governing all future
work at these sites. The terms of the consent agreement will allow the company
to investigate these sites and set remediation priorities based upon the results
of the investigations and risk analysis. At March 31, 2000, the costs incurred
for preliminary site investigation and risk assessment have been minimal.
<PAGE>
Decommissioning: On September 1, 1999, Wolf Creek submitted the 1999
Decommissioning Cost Study to the KCC for approval. The KCC approved the 1999
Decommissioning Cost Study on April 26, 2000. Based on the study, the company's
share of Wolf Creek's decommissioning costs, under the immediate dismantlement
method, is estimated to be approximately $631 million during the period 2025
through 2034, or approximately $221 million in 1999 dollars. These costs were
calculated using an assumed inflation rate of 3.6% over the remaining service
life from 1999 of 26 years.
For additional information on Commitments and Contingencies, see Note 2 to
Consolidated Financial Statements in the company's 1999 Annual Report on
Form 10-K.
6. SEGMENTS OF BUSINESS
The company has segmented its business based on differences in products and
services, production processes, and management responsibility. Based on this
approach, the company has identified two reportable segments: electric
operations and nuclear generation.
Nuclear generation represents the company's 47% ownership in the Wolf Creek
nuclear generating facility. This segment does not have any external sales.
The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies in the company's
1999 Annual Report on Form 10-K. The company evaluates segment performance
based on earnings before interest and taxes.
Three Months Ended March 31, 2000:
Electric Nuclear Eliminating
Operations Generation Items Total
(Dollars in Thousands)
External sales. . . $ 149,913 $ - $ - $ 149,913
Internal sales. . . - 29,480 (29,480) -
Earnings before
interest and taxes 26,159 (5,346) - 20,813
Interest expense. . 12,361
Earnings before
income taxes . . . 8,452
<PAGE>
Three Months Ended March 31, 1999:
Electric Nuclear Eliminating
Operations Generation Items Total
(Dollars in Thousands)
External sales. . . $ 133,910 $ - $ - $ 133,910
Internal sales. . . 29,218 (29,218) -
Earnings before
interest and taxes 33,142 (4,225) - 28,917
Interest expense. . 12,262
Earnings before
income taxes . . . 16,655
<PAGE> KANSAS GAS AND ELECTRIC COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
In Management's Discussion and Analysis we explain the general financial
condition and the operating results for the company. We explain:
- What factors impact our business
- What our earnings and costs were for the three months ending
March 31, 2000, and 1999
- Why these earnings and costs differed from period to period
- How our earnings and costs affect our overall financial condition
- Any other items that particularly affect our financial condition
or earnings
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations updates the information provided in the 1999 Annual
Report on Form 10-K and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
1999 Annual Report on Form 10-K.
Forward-Looking Statements
Certain matters discussed here and elsewhere in this Form 10-Q are
"forward-looking statements." The Private Securities Litigation Reform Act of
1995 has established that these statements qualify for safe harbors from
liability. Forward-looking statements may include words like we "believe,"
"anticipate," "expect" or words of similar meaning. Forward-looking statements
describe our future plans, objectives, expectations or goals. Such statements
address future events and conditions concerning capital expenditures, earnings,
litigation, rate and other regulatory matters, possible corporate
restructurings, mergers, acquisitions, dispositions, liquidity and capital
resources, compliance with debt covenants, interest and dividends, environmental
matters, changing weather, nuclear operations, accounting matters, and the
overall economy of our service area. What happens in each case could vary
materially from what we expect because of such things as electric utility
deregulation, including ongoing municipal, state and federal activities, such as
the Wichita municipalization proceedings; future economic conditions;
legislative and regulatory developments; our regulatory and competitive markets;
and other circumstances affecting anticipated operations, sales and costs.
Corporate Restructuring
On March 28, 2000, Western Resources' board of directors approved the
separation of its electric utility business (including us) and non-electric
utility businesses. The separation is currently expected to be effected through
an offer to be made to shareholders prior to year end 2000. The offer will be
described in materials furnished to Western Resources' shareholders. The impact
<PAGE>
on Western Resources' (and our) financial position and operating results cannot
be determined until the final details of the offer are determined. Western
Resources' goal is to complete the separation in the fourth quarter of 2000, but
no assurance can be given that the separation will be completed by that time or
at all.
OPERATING RESULTS
The following discussion explains significant changes in operating results
between the three months ended March 31, 2000, and March 31, 1999. Net income
for the three months ended March 31, 2000, decreased $7 million compared to the
same period for 1999 mostly due to higher purchased power expense, losses from
system hedging transactions, and higher costs associated with the dispatching of
electric power discussed below.
Sales: The following table reflects the increases/(decreases) in sales
volumes for the three months ended March 31, 2000, from the comparable periods
of 1999.
2000 1999 % Change
(Thousands of Megawatthours)
Residential . . . . . . . 587 570 3.0 %
Commercial. . . . . . . . 555 540 2.9 %
Industrial. . . . . . . . 819 829 (1.2)%
Other . . . . . . . . . . 63 122 (48.6)%
Total retail. . . . . . 2,024 2,060 (1.8)%
System hedging. . . . . . 321 - -
Wholesale . . . . . . . . 710 319 122.7 %
Total . . . . . . . . . 3,055 2,379 28.4 %
Sales increased 12%, or $16 million, due to higher wholesale sales volumes
to wholesale customer within our service territory. The wholesale sales volumes
increased due to increased wholesale market opportunities and greater system
availability, allowing us to sell more electricity to wholesale customers than
we did in 1999. The increased wholesale market opportunities are due to a
larger trading operation and increased involvement in the market for our system.
Cost of Sales: Items included in energy cost of sales are fuel expense and
purchased power expense (electricity we purchase from others for resale and
hedging transactions for our system).
Total cost of sales increased approximately $13 million. The increase was
primarily due to an increase in fuel and purchased power costs associated with
a scheduled generating station outage. Additionally, system hedging
transactions made to benefit our system contributed to the increase in the cost
of sales.
At certain times, we enter into transactions to reduce exposure relative
to the volatility of cash market prices. The system hedging sales discussed
above represent the settlement of such transactions. During the first quarter
of 1999, we had no material system hedging transactions. However, during the
last quarter of 1999, hedging transactions were entered into in order to
maintain
<PAGE>
system reliability in the event of any Year 2000 problems. These hedging
transactions were settled during the first quarter of 2000. These transactions
resulted in a loss of approximately $0.5 million.
Gross Profit: Total gross profit increased 3%, or $3 million, primarily
due to higher wholesale sales.
Operating and Maintenance Expense: Total operating and maintenance expense
increased $9 million. This increase is primarily due to an increase in costs
associated with the dispatching of electric power and increased maintenance
costs due to a planned outage at one of our generating units.
Income Taxes: Income tax expense decreased approximately $1 million, or
34%, due to lower earnings before income taxes.
Business Segments
We have segmented our business based on differences in products and
services, production processes, and management responsibility. Based on this
approach, we have identified two reportable segments: electric operations and
nuclear generation.
Electric Operations
Three Months Ended
March 31,
2000 1999
(Dollars in Thousands)
External sales . . . . . $149,913 $133,910
EBIT . . . . . . . . . . 26,159 33,142
External sales reflect power produced for sale to wholesale and retail
customers. The increase in external sales is due to higher wholesale sales
volumes within in our service territory. EBIT is lower primarily because of
higher purchased power expense, losses from system hedging transactions, and
higher costs associated with the dispatching of electric power.
Nuclear Generation
Three Months Ended
March 31,
2000 1999
(Dollars in Thousands)
Internal sales. . . . . . $ 29,480 $ 29,218
EBIT. . . . . . . . . . . (5,346) (4,225)
Nuclear Generation has no external sales because it provides all of its
power to its co-owners Kansas City Power and Light Company, Kansas Electric
Power Cooperative, Inc., and us. Internal sales include the internal transfer
price that Nuclear Generation charges electric operations. The amounts in the
table above are our 47% share of Wolf Creek's operating results. EBIT is
negative because internal sales are less than Wolf Creek's costs. Internal
sales and EBIT did not materially change because there were no Wolf Creek
outages in either period.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
While our internally generated cash is sufficient to fund operations and
debt service payments, we do not maintain independent short-term credit
facilities and rely on Western Resources for short-term cash needs. If Western
Resources is unable to borrow under its credit facilities, we could have a short
term liquidity issue which could require us to obtain a credit facility for our
short-term cash needs.
Standard & Poor's Ratings Group (S&P), Fitch Investors Service (Fitch) and
Moody's Investors Service (Moody's) are independent credit-rating agencies that
rate our debt securities. These ratings indicate the agencies' assessment of
our ability to pay interest and principal on these securities. On March 29,
2000, S&P, Moody's and Fitch lowered the credit ratings of the company.
As of May 9, 2000, Western Resources' and our ratings with these agencies
were as follows:
Western KGE's
Resources' Western KGE's Senior
Mortgage Resources' Mortgage Unsecured
Bond Unsecured Bond Debt
Rating Agency Rating Debt Rating Rating
S&P BBB- BB- BB+ BB-
Fitch BB+ BB BB+ BB
Moody's Ba1 Ba2 Ba1 -
OTHER INFORMATION
Electric Utility
City of Wichita Proceeding: In December 1999, the Wichita, Kansas, City
Council authorized the hiring of an outside consultant to determine the
feasibility of creating a municipal electric utility to replace us as the
supplier of electricity in Wichita. Our rates are currently 7% below the
national average for retail customers. The average rates charged to retail
customers in territories served by Western Resources' KPL division are 19% lower
than our rates. Customers within the Wichita metropolitan area account for
approximately 56% of our total energy sales. We have an exclusive franchise
with the City of Wichita to provide retail electric service that expires March
2002. Under Kansas law, KGE will continue to have the exclusive right to serve
the customers in Wichita following the expiration of the franchise, assuming the
system is not municipalized. See also "FERC Proceedings" below regarding a
complaint filed with FERC against us by the City of Wichita.
<PAGE>
KCC Proceedings: On March 16, 2000, the Kansas Industrial Consumers (KIC),
an organization of commercial and industrial users of electricity in Kansas,
filed a complaint with the Kansas Corporation Commission (KCC) requesting an
investigation of Western Resources' and our rates. The KIC alleges that these
rates are not based on current costs. Western Resources filed a motion on April
24, 2000 to dismiss the complaint. Western Resources and we will continue to
oppose this request vigorously.
FERC Proceeding: In September 1999, the City of Wichita filed a complaint
with the FERC against us, alleging improper affiliate transactions between KPL,
a division of Western Resources and us. The City of Wichita is asking that FERC
equalize the generation costs between the company and KPL, in addition to other
matters. FERC has issued an order setting this matter for hearing and has
referred the case to a settlement judge. The hearing has been suspended pending
settlement discussions between the parties. We believe that the City of
Wichita's complaint is without merit and intend to defend against it vigorously.
Nuclear Decommissioning: On September 1, 1999, Wolf Creek submitted the
1999 Decommissioning Cost Study to the KCC for approval. The KCC approved the
1999 Decommissioning Cost Study on April 26, 2000. Based on the study, our
share of Wolf Creek's decommissioning costs, under the immediate dismantlement
method, is estimated to be approximately $631 million during the period 2025
through 2034, or approximately $221 million in 1999 dollars. These costs were
calculated using an assumed inflation rate of 3.6% over the remaining service
life from 1999 of 26 years.
Market Risk: We have not experienced any significant changes in our
exposure to market risk since December 31, 1999. For additional information on
our market risk, see our Form 10-K dated December 31, 1999.
<PAGE> ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information relating to market risk disclosure is set forth in Other
Information of Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations included herein.
<PAGE> KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
Item 1. Legal Proceedings
See Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations which is incorporated herein by
reference.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Information required by Item 4 is omitted pursuant to General
Instruction H(2)(b) to Form 10-Q.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
for Three Months Ended March 31, 2000 (filed
electronically)
Exhibit 27 - Financial Data Schedule (filed electronically)
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
KANSAS GAS AND ELECTRIC COMPANY
Date May 11, 2000 By /s/ Richard D. Terrill
Richard D. Terrill
Secretary, Treasurer and
General Counsel
<PAGE>
<TABLE>
Exhibit 12
KANSAS GAS AND ELECTRIC COMPANY
Computations of Ratio of Earnings to Fixed Charges
(Dollars in Thousands)
<CAPTION>
Unaudited
Three
Months
Ended
March 31, Year Ended December 31,
2000 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing operations . . . . . . . $ 8,452 $119,248 $148,736 $ 69,536 $132,532 $162,660
Fixed Charges:
Interest expense. . . . . . . . . . . . . . . . 12,361 49,518 49,358 50,450 58,062 52,263
Interest on Corporate-owned
Life Insurance Borrowings . . . . . . . . . . 8,692 31,450 32,368 31,253 27,636 25,357
Interest Applicable to Rentals. . . . . . . . . 5,690 24,626 25,106 25,143 25,539 25,375
Total Fixed Charges . . . . . . . . . . . . 26,743 105,594 106,832 106,846 111,237 102,995
Earnings (1). . . . . . . . . . . . . . . . . . . $ 35,195 $224,842 $255,568 $176,382 $243,769 $265,655
Ratio of Earnings to Fixed Charges. . . . . . . . 1.32 2.13 2.39 1.65 2.19 2.58
(1) Earnings are deemed to consist of net income to which has been added income taxes (including net deferred investment
tax credit) and fixed charges. Fixed charges consist of all interest on indebtedness, amortization of debt
discount and expense, and the portion of rental expense which represents an interest factor.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at March 31, 2000, and the Statement of Income for the three months ended
March 31, 2000, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 37
<SECURITIES> 0
<RECEIVABLES> 60962
<ALLOWANCES> 2052
<INVENTORY> 44638
<CURRENT-ASSETS> 244003
<PP&E> 3701657
<DEPRECIATION> 1227666
<TOTAL-ASSETS> 3057323
<CURRENT-LIABILITIES> 205639
<BONDS> 684273
0
0
<COMMON> 1065634
<OTHER-SE> 37839
<TOTAL-LIABILITY-AND-EQUITY> 3057323
<SALES> 149913
<TOTAL-REVENUES> 149913
<CGS> 38262
<TOTAL-COSTS> 127846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12361
<INCOME-PRETAX> 8452
<INCOME-TAX> 2484
<INCOME-CONTINUING> 5968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5968
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
