ITEM 1. FINANCIAL STATEMENTS
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GREAT PLAINS ENERGY INCORPORATED
|
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Consolidated Balance Sheets
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(Unaudited)
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|
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|
September 30
|
|
December 31
|
|
|
2016
|
|
2015
|
|
ASSETS
|
(millions, except share amounts)
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12.0
|
|
|
|
|
$
|
11.3
|
|
|
|
Funds on deposit
|
|
2.4
|
|
|
|
|
2.1
|
|
|
|
Receivables, net
|
|
194.1
|
|
|
|
|
147.7
|
|
|
|
Accounts receivable pledged as collateral
|
|
190.0
|
|
|
|
|
175.0
|
|
|
|
Fuel inventories, at average cost
|
|
98.6
|
|
|
|
|
118.4
|
|
|
|
Materials and supplies, at average cost
|
|
161.0
|
|
|
|
|
155.7
|
|
|
|
Deferred refueling outage costs
|
|
11.7
|
|
|
|
|
19.2
|
|
|
|
Refundable income taxes
|
|
1.1
|
|
|
|
|
3.8
|
|
|
|
Prepaid expenses and other assets
|
|
67.9
|
|
|
|
|
31.0
|
|
|
|
Total
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738.8
|
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|
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|
664.2
|
|
|
|
Utility Plant, at Original Cost
|
|
|
|
|
|
|
|
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Electric
|
|
13,418.7
|
|
|
|
|
13,189.9
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|
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|
Less - accumulated depreciation
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|
5,041.6
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|
|
|
|
4,943.7
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Net utility plant in service
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8,377.1
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|
|
|
8,246.2
|
|
|
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Construction work in progress
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|
400.9
|
|
|
|
|
347.9
|
|
|
|
Nuclear fuel, net of amortization of $214.9 and $192.5
|
|
66.5
|
|
|
|
|
68.3
|
|
|
|
Total
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|
8,844.5
|
|
|
|
|
8,662.4
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|
|
Investments and Other Assets
|
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|
|
|
|
|
|
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Nuclear decommissioning trust fund
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|
218.3
|
|
|
|
|
200.7
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|
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Regulatory assets
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|
980.4
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|
979.1
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|
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Goodwill
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169.0
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169.0
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Other
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93.7
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|
|
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|
63.2
|
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Total
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|
1,461.4
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|
|
|
|
1,412.0
|
|
|
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Total
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|
$
|
11,044.7
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|
|
|
$
|
10,738.6
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|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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|
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|
|
|
|
|
|
|
|
|
|
GREAT PLAINS ENERGY INCORPORATED
|
|
Consolidated Balance Sheets
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|
(Unaudited)
|
|
|
|
September 30
|
|
December 31
|
|
|
2016
|
|
2015
|
|
LIABILITIES AND CAPITALIZATION
|
(millions, except share amounts)
|
|
Current Liabilities
|
|
|
|
|
|
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Notes payable
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$
|
104.0
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|
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$
|
10.0
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|
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Collateralized note payable
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|
190.0
|
|
|
|
|
175.0
|
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Commercial paper
|
|
157.1
|
|
|
|
|
224.0
|
|
|
|
Current maturities of long-term debt
|
|
382.1
|
|
|
|
|
1.1
|
|
|
|
Accounts payable
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|
227.7
|
|
|
|
|
352.9
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|
|
|
Accrued taxes
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|
123.4
|
|
|
|
|
31.6
|
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|
|
Accrued interest
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|
61.4
|
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|
|
|
44.7
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Accrued compensation and benefits
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|
47.5
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|
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|
41.4
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Pension and post-retirement liability
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|
3.4
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|
|
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|
3.4
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|
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Derivative instruments
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|
78.8
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|
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|
|
0.5
|
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Other
|
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24.7
|
|
|
|
|
31.1
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|
|
|
Total
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1,400.1
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|
|
|
|
915.7
|
|
|
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Deferred Credits and Other Liabilities
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|
|
|
|
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Deferred income taxes
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|
1,270.5
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|
|
|
1,158.8
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|
|
Deferred tax credits
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|
126.5
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|
125.1
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|
Asset retirement obligations
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|
285.0
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|
275.9
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|
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Pension and post-retirement liability
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|
467.2
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|
455.2
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|
Regulatory liabilities
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|
305.1
|
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|
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|
284.4
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|
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Other
|
|
82.6
|
|
|
|
|
82.9
|
|
|
|
Total
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|
2,536.9
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|
|
|
2,382.3
|
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Capitalization
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Great Plains Energy common shareholders' equity
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Common stock - 600,000,000 and 250,000,000 shares authorized without par value
154,925,107 and 154,504,900 shares issued, stated value
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2,661.7
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2,646.7
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Retained earnings
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1,092.7
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1,024.4
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Treasury stock - 128,096 and 101,229 shares, at cost
|
|
(3.8
|
)
|
|
|
|
(2.6
|
)
|
|
|
Accumulated other comprehensive loss
|
|
(7.5
|
)
|
|
|
|
(12.0
|
)
|
|
|
Total
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|
3,743.1
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|
|
|
3,656.5
|
|
|
|
Cumulative preferred stock $100 par value
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|
|
|
|
|
|
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|
3.80%
- 0 and
100,000
shares issued
|
|
—
|
|
|
|
|
10.0
|
|
|
|
4.50%
- 0 and
100,000
shares issued
|
|
—
|
|
|
|
|
10.0
|
|
|
|
4.20%
- 0 and
70,000
shares issued
|
|
—
|
|
|
|
|
7.0
|
|
|
|
4.35%
- 0 and
120,000
shares issued
|
|
—
|
|
|
|
|
12.0
|
|
|
|
Total
|
|
—
|
|
|
|
|
39.0
|
|
|
|
Long-term debt (
Note 11
)
|
|
3,364.6
|
|
|
|
|
3,745.1
|
|
|
|
Total
|
|
7,107.7
|
|
|
|
|
7,440.6
|
|
|
|
Commitments and Contingencies (
Note 14
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,044.7
|
|
|
|
|
$
|
10,738.6
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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GREAT PLAINS ENERGY INCORPORATED
|
Consolidated Statements of Comprehensive Income
|
(Unaudited)
|
|
|
Three Months Ended
September 30
|
|
Year to Date
September 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Operating Revenues
|
|
(millions, except per share amounts)
|
Electric revenues
|
|
$
|
856.8
|
|
|
$
|
781.4
|
|
|
$
|
2,099.7
|
|
|
$
|
1,939.5
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
105.7
|
|
|
124.5
|
|
|
285.7
|
|
|
332.0
|
|
Purchased power
|
|
78.4
|
|
|
52.1
|
|
|
176.5
|
|
|
146.3
|
|
Transmission
|
|
23.8
|
|
|
23.9
|
|
|
64.5
|
|
|
65.1
|
|
Utility operating and maintenance expenses
|
|
193.3
|
|
|
182.5
|
|
|
553.1
|
|
|
537.4
|
|
Costs to achieve the anticipated acquisition of Westar Energy, Inc.
|
|
14.4
|
|
|
—
|
|
|
19.4
|
|
|
—
|
|
Depreciation and amortization
|
|
86.4
|
|
|
82.4
|
|
|
256.9
|
|
|
245.7
|
|
General taxes
|
|
63.7
|
|
|
58.0
|
|
|
174.5
|
|
|
162.8
|
|
Other
|
|
9.2
|
|
|
1.3
|
|
|
15.0
|
|
|
3.5
|
|
Total
|
|
574.9
|
|
|
524.7
|
|
|
1,545.6
|
|
|
1,492.8
|
|
Operating income
|
|
281.9
|
|
|
256.7
|
|
|
554.1
|
|
|
446.7
|
|
Non-operating income
|
|
4.3
|
|
|
0.9
|
|
|
9.7
|
|
|
9.1
|
|
Non-operating expenses
|
|
(3.0
|
)
|
|
(1.4
|
)
|
|
(10.7
|
)
|
|
(8.7
|
)
|
Interest charges
|
|
(67.6
|
)
|
|
(51.0
|
)
|
|
(251.7
|
)
|
|
(148.3
|
)
|
Income before income tax expense and income from equity investments
|
|
215.6
|
|
|
205.2
|
|
|
301.4
|
|
|
298.8
|
|
Income tax expense
|
|
(82.7
|
)
|
|
(78.6
|
)
|
|
(111.5
|
)
|
|
(109.6
|
)
|
Income from equity investments, net of income taxes
|
|
0.7
|
|
|
0.2
|
|
|
2.1
|
|
|
0.9
|
|
Net income
|
|
133.6
|
|
|
126.8
|
|
|
192.0
|
|
|
190.1
|
|
Preferred stock dividend requirements and redemption premium
|
|
0.9
|
|
|
0.4
|
|
|
1.7
|
|
|
1.2
|
|
Earnings available for common shareholders
|
|
$
|
132.7
|
|
|
$
|
126.4
|
|
|
$
|
190.3
|
|
|
$
|
188.9
|
|
|
|
|
|
|
|
|
|
|
Average number of basic common shares outstanding
|
|
154.6
|
|
|
154.2
|
|
|
154.5
|
|
|
154.1
|
|
Average number of diluted common shares outstanding
|
|
154.9
|
|
|
154.8
|
|
|
154.9
|
|
|
154.8
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.86
|
|
|
$
|
0.82
|
|
|
$
|
1.23
|
|
|
$
|
1.23
|
|
Diluted earnings per common share
|
|
$
|
0.86
|
|
|
$
|
0.82
|
|
|
$
|
1.23
|
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$
|
0.2625
|
|
|
$
|
0.245
|
|
|
$
|
0.7875
|
|
|
$
|
0.735
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
133.6
|
|
|
$
|
126.8
|
|
|
$
|
192.0
|
|
|
$
|
190.1
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Derivative hedging activity
|
|
|
|
|
|
|
|
|
|
|
Reclassification to expenses, net of tax
|
|
1.3
|
|
|
1.4
|
|
|
4.1
|
|
|
4.2
|
|
Derivative hedging activity, net of tax
|
|
1.3
|
|
|
1.4
|
|
|
4.1
|
|
|
4.2
|
|
Defined benefit pension plans
|
|
|
|
|
|
|
|
|
Amortization of net losses included in net periodic benefit costs, net of tax
|
|
0.2
|
|
|
—
|
|
|
0.4
|
|
|
0.3
|
|
Change in unrecognized pension expense, net of tax
|
|
0.2
|
|
|
—
|
|
|
0.4
|
|
|
0.3
|
|
Total other comprehensive income
|
|
1.5
|
|
|
1.4
|
|
|
4.5
|
|
|
4.5
|
|
Comprehensive income
|
|
$
|
135.1
|
|
|
$
|
128.2
|
|
|
$
|
196.5
|
|
|
$
|
194.6
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
|
|
|
|
|
|
|
|
|
GREAT PLAINS ENERGY INCORPORATED
|
Consolidated Statements of Cash Flows
|
(Unaudited)
|
|
|
|
|
Year to Date September 30
|
2016
|
|
2015
|
Cash Flows from Operating Activities
|
(millions)
|
Net income
|
$
|
192.0
|
|
|
$
|
190.1
|
|
Adjustments to reconcile income to net cash from operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
256.9
|
|
|
245.7
|
|
Amortization of:
|
|
|
|
|
|
Nuclear fuel
|
22.4
|
|
|
18.4
|
|
Other
|
52.4
|
|
|
35.3
|
|
Deferred income taxes, net
|
109.9
|
|
|
110.1
|
|
Investment tax credit amortization
|
(1.1
|
)
|
|
(1.1
|
)
|
Income from equity investments, net of income taxes
|
(2.1
|
)
|
|
(0.9
|
)
|
Fair value impacts of interest rate swaps
|
78.8
|
|
|
—
|
|
Other operating activities (Note 3)
|
(24.4
|
)
|
|
9.7
|
|
Net cash from operating activities
|
684.8
|
|
|
607.3
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
Utility capital expenditures
|
(435.3
|
)
|
|
(520.9
|
)
|
Allowance for borrowed funds used during construction
|
(4.7
|
)
|
|
(4.3
|
)
|
Purchases of nuclear decommissioning trust investments
|
(23.7
|
)
|
|
(35.3
|
)
|
Proceeds from nuclear decommissioning trust investments
|
21.2
|
|
|
32.8
|
|
Other investing activities
|
(48.7
|
)
|
|
(34.5
|
)
|
Net cash from investing activities
|
(491.2
|
)
|
|
(562.2
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
Issuance of common stock
|
2.4
|
|
|
2.3
|
|
Issuance of long-term debt
|
—
|
|
|
348.8
|
|
Issuance fees
|
(68.7
|
)
|
|
(2.6
|
)
|
Repayment of long-term debt
|
(1.1
|
)
|
|
(87.0
|
)
|
Net change in short-term borrowings
|
27.1
|
|
|
(211.2
|
)
|
Net change in collateralized short-term borrowings
|
15.0
|
|
|
19.0
|
|
Dividends paid
|
(122.5
|
)
|
|
(114.6
|
)
|
Cumulative preferred stock redemption
|
(40.1
|
)
|
|
—
|
|
Purchase of treasury stock
|
(4.9
|
)
|
|
(1.6
|
)
|
Other financing activities
|
(0.1
|
)
|
|
(0.2
|
)
|
Net cash from financing activities
|
(192.9
|
)
|
|
(47.1
|
)
|
Net Change in Cash and Cash Equivalents
|
0.7
|
|
|
(2.0
|
)
|
Cash and Cash Equivalents at Beginning of Year
|
11.3
|
|
|
13.0
|
|
Cash and Cash Equivalents at End of Period
|
$
|
12.0
|
|
|
$
|
11.0
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GREAT PLAINS ENERGY INCORPORATED
|
Consolidated Statements of Common Shareholders' Equity
|
(Unaudited)
|
|
|
|
|
Year to Date September 30
|
2016
|
|
2015
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Common Stock
|
(millions, except share amounts)
|
Beginning balance
|
154,504,900
|
|
|
$
|
2,646.7
|
|
|
154,254,037
|
|
|
$
|
2,639.3
|
|
Issuance of common stock
|
420,207
|
|
|
12.5
|
|
|
210,579
|
|
|
5.5
|
|
Equity compensation expense, net of forfeitures
|
|
3.1
|
|
|
|
|
|
1.4
|
|
Unearned Compensation
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common stock
|
|
|
|
(2.8
|
)
|
|
|
|
|
(2.4
|
)
|
Forfeiture of restricted common stock
|
|
|
—
|
|
|
|
|
0.4
|
|
Compensation expense recognized
|
|
|
|
2.0
|
|
|
|
|
|
1.3
|
|
Other
|
|
|
|
0.2
|
|
|
|
|
|
(0.5
|
)
|
Ending balance
|
154,925,107
|
|
|
2,661.7
|
|
|
154,464,616
|
|
|
2,645.0
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
|
1,024.4
|
|
|
|
|
|
967.8
|
|
Net income
|
|
|
|
192.0
|
|
|
|
|
|
190.1
|
|
Redemption premium on preferred stock
|
|
|
(0.6
|
)
|
|
|
|
—
|
|
Dividends:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($0.7875 and $0.735 per share)
|
|
(121.8
|
)
|
|
|
|
|
(113.4
|
)
|
Preferred stock - at required rates
|
|
|
|
(0.7
|
)
|
|
|
|
|
(1.2
|
)
|
Performance shares
|
|
|
|
(0.6
|
)
|
|
|
|
|
(0.6
|
)
|
Ending balance
|
|
|
|
1,092.7
|
|
|
|
|
|
1,042.7
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
(101,229
|
)
|
|
(2.6
|
)
|
|
(91,281
|
)
|
|
(2.3
|
)
|
Treasury shares acquired
|
(136,562
|
)
|
|
(4.1
|
)
|
|
(73,326
|
)
|
|
(1.9
|
)
|
Treasury shares reissued
|
109,695
|
|
|
2.9
|
|
|
64,180
|
|
|
1.6
|
|
Ending balance
|
(128,096
|
)
|
|
(3.8
|
)
|
|
(100,427
|
)
|
|
(2.6
|
)
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
|
(12.0
|
)
|
|
|
|
|
(18.7
|
)
|
Derivative hedging activity, net of tax
|
|
|
|
4.1
|
|
|
|
|
|
4.2
|
|
Change in unrecognized pension expense, net of tax
|
|
0.4
|
|
|
|
|
|
0.3
|
|
Ending balance
|
|
|
|
(7.5
|
)
|
|
|
|
|
(14.2
|
)
|
Total Great Plains Energy Common Shareholders' Equity
|
|
|
$
|
3,743.1
|
|
|
|
|
|
$
|
3,670.9
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
KANSAS CITY POWER & LIGHT COMPANY
|
Consolidated Balance Sheets
|
(Unaudited)
|
|
|
September 30
|
|
December 31
|
|
2016
|
|
2015
|
ASSETS
|
(millions, except share amounts)
|
Current Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5.7
|
|
|
|
|
$
|
2.3
|
|
|
Funds on deposit
|
|
1.4
|
|
|
|
|
0.5
|
|
|
Receivables, net
|
|
168.7
|
|
|
|
|
129.2
|
|
|
Related party receivables
|
|
91.0
|
|
|
|
|
65.8
|
|
|
Accounts receivable pledged as collateral
|
|
110.0
|
|
|
|
|
110.0
|
|
|
Fuel inventories, at average cost
|
|
70.8
|
|
|
|
|
83.5
|
|
|
Materials and supplies, at average cost
|
|
118.4
|
|
|
|
|
114.6
|
|
|
Deferred refueling outage costs
|
|
11.7
|
|
|
|
|
19.2
|
|
|
Refundable income taxes
|
|
—
|
|
|
|
|
79.0
|
|
|
Prepaid expenses and other assets
|
|
27.1
|
|
|
|
|
27.1
|
|
|
Total
|
|
604.8
|
|
|
|
|
631.2
|
|
|
Utility Plant, at Original Cost
|
|
|
|
|
|
|
|
|
|
Electric
|
|
9,768.8
|
|
|
|
|
9,640.4
|
|
|
Less - accumulated depreciation
|
|
3,806.1
|
|
|
|
|
3,722.6
|
|
|
Net utility plant in service
|
|
5,962.7
|
|
|
|
|
5,917.8
|
|
|
Construction work in progress
|
|
306.5
|
|
|
|
|
246.6
|
|
|
Nuclear fuel, net of amortization of
$214.9
and
$192.5
|
|
66.5
|
|
|
|
|
68.3
|
|
|
Total
|
|
6,335.7
|
|
|
|
|
6,232.7
|
|
|
Investments and Other Assets
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trust fund
|
|
218.3
|
|
|
|
|
200.7
|
|
|
Regulatory assets
|
|
733.6
|
|
|
|
|
732.4
|
|
|
Other
|
|
20.7
|
|
|
|
|
17.6
|
|
|
Total
|
|
972.6
|
|
|
|
|
950.7
|
|
|
Total
|
|
$
|
7,913.1
|
|
|
|
|
$
|
7,814.6
|
|
|
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
KANSAS CITY POWER & LIGHT COMPANY
|
Consolidated Balance Sheets
|
(Unaudited)
|
|
|
|
|
|
September 30
|
|
December 31
|
|
2016
|
|
2015
|
LIABILITIES AND CAPITALIZATION
|
(millions, except share amounts)
|
Current Liabilities
|
|
|
|
|
|
|
|
Collateralized note payable
|
|
$
|
110.0
|
|
|
|
|
$
|
110.0
|
|
|
Commercial paper
|
|
—
|
|
|
|
|
180.3
|
|
|
Current maturities of long-term debt
|
|
281.0
|
|
|
|
|
—
|
|
|
Accounts payable
|
|
180.3
|
|
|
|
|
258.8
|
|
|
Accrued taxes
|
|
125.7
|
|
|
|
|
25.6
|
|
|
Accrued interest
|
|
41.3
|
|
|
|
|
32.4
|
|
|
Accrued compensation and benefits
|
|
47.5
|
|
|
|
|
41.4
|
|
|
Pension and post-retirement liability
|
|
2.0
|
|
|
|
|
2.0
|
|
|
Other
|
|
11.5
|
|
|
|
|
12.6
|
|
|
Total
|
|
799.3
|
|
|
|
|
663.1
|
|
|
Deferred Credits and Other Liabilities
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
1,209.3
|
|
|
|
|
1,132.6
|
|
|
Deferred tax credits
|
|
123.0
|
|
|
|
|
123.8
|
|
|
Asset retirement obligations
|
|
246.7
|
|
|
|
|
239.3
|
|
|
Pension and post-retirement liability
|
|
445.7
|
|
|
|
|
433.4
|
|
|
Regulatory liabilities
|
|
176.5
|
|
|
|
|
164.6
|
|
|
Other
|
|
60.8
|
|
|
|
|
61.6
|
|
|
Total
|
|
2,262.0
|
|
|
|
|
2,155.3
|
|
|
Capitalization
|
|
|
|
|
|
|
|
|
|
Common shareholder's equity
|
|
|
|
|
|
|
|
|
|
Common stock - 1,000 shares authorized without par value
|
|
|
|
|
|
|
|
|
|
1 share issued, stated value
|
|
1,563.1
|
|
|
|
|
1,563.1
|
|
|
Retained earnings
|
|
1,010.8
|
|
|
|
|
879.6
|
|
|
Accumulated other comprehensive loss
|
|
(5.6
|
)
|
|
|
|
(9.6
|
)
|
|
Total
|
|
2,568.3
|
|
|
|
|
2,433.1
|
|
|
Long-term debt (
Note
11
)
|
|
2,283.5
|
|
|
|
|
2,563.1
|
|
|
Total
|
|
4,851.8
|
|
|
|
|
4,996.2
|
|
|
Commitments and Contingencies (
Note
14
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,913.1
|
|
|
|
|
$
|
7,814.6
|
|
|
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KANSAS CITY POWER & LIGHT COMPANY
|
Consolidated Statements of Comprehensive Income
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Year to Date
September 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Operating Revenues
|
|
(millions)
|
Electric revenues
|
|
$
|
597.6
|
|
|
$
|
526.3
|
|
|
$
|
1,474.1
|
|
|
$
|
1,314.1
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
77.0
|
|
|
89.4
|
|
|
205.6
|
|
|
237.3
|
|
Purchased power
|
|
41.5
|
|
|
22.9
|
|
|
93.1
|
|
|
73.4
|
|
Transmission
|
|
14.5
|
|
|
16.2
|
|
|
44.8
|
|
|
42.3
|
|
Operating and maintenance expenses
|
|
131.9
|
|
|
122.9
|
|
|
379.6
|
|
|
365.8
|
|
Depreciation and amortization
|
|
61.9
|
|
|
58.7
|
|
|
184.1
|
|
|
175.0
|
|
General taxes
|
|
51.0
|
|
|
45.4
|
|
|
136.9
|
|
|
125.1
|
|
Other
|
|
0.6
|
|
|
—
|
|
|
2.3
|
|
|
(0.2
|
)
|
Total
|
|
378.4
|
|
|
355.5
|
|
|
1,046.4
|
|
|
1,018.7
|
|
Operating income
|
|
219.2
|
|
|
170.8
|
|
|
427.7
|
|
|
295.4
|
|
Non-operating income
|
|
3.6
|
|
|
0.6
|
|
|
7.5
|
|
|
6.3
|
|
Non-operating expenses
|
|
(1.9
|
)
|
|
(1.8
|
)
|
|
(5.6
|
)
|
|
(5.7
|
)
|
Interest charges
|
|
(34.7
|
)
|
|
(34.8
|
)
|
|
(104.9
|
)
|
|
(100.4
|
)
|
Income before income tax expense
|
|
186.2
|
|
|
134.8
|
|
|
324.7
|
|
|
195.6
|
|
Income tax expense
|
|
(68.5
|
)
|
|
(50.5
|
)
|
|
(116.5
|
)
|
|
(68.7
|
)
|
Net income
|
|
$
|
117.7
|
|
|
$
|
84.3
|
|
|
$
|
208.2
|
|
|
$
|
126.9
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
117.7
|
|
|
$
|
84.3
|
|
|
$
|
208.2
|
|
|
$
|
126.9
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Derivative hedging activity
|
|
|
|
|
|
|
|
|
|
|
Reclassification to expenses, net of tax
|
|
1.2
|
|
|
1.3
|
|
|
4.0
|
|
|
4.0
|
|
Derivative hedging activity, net of tax
|
|
1.2
|
|
|
1.3
|
|
|
4.0
|
|
|
4.0
|
|
Total other comprehensive income
|
|
1.2
|
|
|
1.3
|
|
|
4.0
|
|
|
4.0
|
|
Comprehensive income
|
|
$
|
118.9
|
|
|
$
|
85.6
|
|
|
$
|
212.2
|
|
|
$
|
130.9
|
|
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
|
|
|
|
|
|
|
|
|
|
|
|
KANSAS CITY POWER & LIGHT COMPANY
|
Consolidated Statements of Cash Flows
|
(Unaudited)
|
|
|
|
|
|
|
|
Year to Date September 30
|
|
2016
|
|
|
|
2015
|
Cash Flows from Operating Activities
|
(millions)
|
Net income
|
|
$
|
208.2
|
|
|
|
|
$
|
126.9
|
|
Adjustments to reconcile income to net cash from operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
184.1
|
|
|
|
|
175.0
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Nuclear fuel
|
|
22.4
|
|
|
|
|
18.4
|
|
Other
|
|
25.6
|
|
|
|
|
20.8
|
|
Deferred income taxes, net
|
|
74.0
|
|
|
|
|
19.8
|
|
Investment tax credit amortization
|
|
(0.8
|
)
|
|
|
|
(0.7
|
)
|
Other operating activities (Note 3)
|
|
74.7
|
|
|
|
|
103.6
|
|
Net cash from operating activities
|
|
588.2
|
|
|
|
|
463.8
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Utility capital expenditures
|
|
(286.1
|
)
|
|
|
|
(410.2
|
)
|
Allowance for borrowed funds used during construction
|
|
(3.8
|
)
|
|
|
|
(3.0
|
)
|
Purchases of nuclear decommissioning trust investments
|
|
(23.7
|
)
|
|
|
|
(35.3
|
)
|
Proceeds from nuclear decommissioning trust investments
|
|
21.2
|
|
|
|
|
32.8
|
|
Net money pool lending
|
|
(11.1
|
)
|
|
|
|
—
|
|
Other investing activities
|
|
(23.8
|
)
|
|
|
|
(19.7
|
)
|
Net cash from investing activities
|
|
(327.3
|
)
|
|
|
|
(435.4
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Issuance of long-term debt
|
|
—
|
|
|
|
|
348.8
|
|
Issuance fees
|
|
(0.2
|
)
|
|
|
|
(2.6
|
)
|
Repayment of long-term debt
|
|
—
|
|
|
|
|
(85.9
|
)
|
Net change in short-term borrowings
|
|
(180.3
|
)
|
|
|
|
(276.2
|
)
|
Net money pool borrowings
|
|
—
|
|
|
|
|
(12.6
|
)
|
Dividends paid to Great Plains Energy
|
|
(77.0
|
)
|
|
|
|
—
|
|
Net cash from financing activities
|
|
(257.5
|
)
|
|
|
|
(28.5
|
)
|
Net Change in Cash and Cash Equivalents
|
|
3.4
|
|
|
|
|
(0.1
|
)
|
Cash and Cash Equivalents at Beginning of Year
|
|
2.3
|
|
|
|
|
2.7
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
5.7
|
|
|
|
|
$
|
2.6
|
|
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KANSAS CITY POWER & LIGHT COMPANY
|
Consolidated Statements of Common Shareholder's Equity
|
(Unaudited)
|
|
|
|
|
Year to Date September 30
|
2016
|
|
2015
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
(millions, except share amounts)
|
Common Stock
|
1
|
|
|
$
|
1,563.1
|
|
|
1
|
|
|
$
|
1,563.1
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
|
879.6
|
|
|
|
|
|
726.8
|
|
Net income
|
|
|
|
208.2
|
|
|
|
|
|
126.9
|
|
Dividends:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock held by Great Plains Energy
|
|
|
|
(77.0
|
)
|
|
|
|
|
—
|
|
Ending balance
|
|
|
|
1,010.8
|
|
|
|
|
|
853.7
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
|
(9.6
|
)
|
|
|
|
|
(14.9
|
)
|
Derivative hedging activity, net of tax
|
|
|
|
4.0
|
|
|
|
|
|
4.0
|
|
Ending balance
|
|
|
|
(5.6
|
)
|
|
|
|
|
(10.9
|
)
|
Total Common Shareholder's Equity
|
|
|
|
$
|
2,568.3
|
|
|
|
|
|
$
|
2,405.9
|
|
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
GREAT PLAINS ENERGY INCORPORATED
KANSAS CITY POWER & LIGHT COMPANY
Notes to Unaudited Consolidated Financial Statements
The notes to unaudited consolidated financial statements that follow are a combined presentation for Great Plains Energy Incorporated and Kansas City Power & Light Company, both registrants under this filing. The terms "Great Plains Energy," "Company," "KCP&L" and "Companies" are used throughout this report. "Great Plains Energy" and the "Company" refer to Great Plains Energy Incorporated and its consolidated subsidiaries, unless otherwise indicated. "KCP&L" refers to Kansas City Power & Light Company and its consolidated subsidiaries. "Companies" refers to Great Plains Energy Incorporated and its consolidated subsidiaries and KCP&L and its consolidated subsidiaries. The Companies' interim financial statements reflect all adjustments (which include normal, recurring adjustments) that are necessary, in the opinion of management, for a fair presentation of the results for the interim periods presented.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Great Plains Energy, a Missouri corporation incorporated in 2001, is a public utility holding company and does not own or operate any significant assets other than the stock of its subsidiaries. Great Plains Energy's wholly owned direct subsidiaries with significant operations are as follows:
|
|
•
|
KCP&L is an integrated, regulated electric utility that provides electricity to customers primarily in the states of Missouri and Kansas. KCP&L has one active wholly owned subsidiary, Kansas City Power & Light Receivables Company (KCP&L Receivables Company).
|
|
|
•
|
KCP&L Greater Missouri Operations Company (GMO) is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri. GMO also provides regulated steam service to certain customers in the St. Joseph, Missouri area. GMO has two active wholly owned subsidiaries, GMO Receivables Company and MPS Merchant Services, Inc. (MPS Merchant). MPS Merchant has certain long-term natural gas contracts remaining from its former non-regulated trading operations.
|
Great Plains Energy also wholly owns GPE Transmission Holding Company, LLC (GPETHC). GPETHC owns
13.5%
of Transource Energy, LLC (Transource) with the remaining
86.5%
owned by AEP Transmission Holding Company, LLC (AEPTHC), a subsidiary of American Electric Power Company, Inc. GPETHC accounts for its investment in Transource under the equity method.
Transource is focused on the development of competitive electric transmission projects.
Each of Great Plains Energy's and KCP&L's consolidated financial statements includes the accounts of their subsidiaries. Intercompany transactions have been eliminated.
Great Plains Energy's sole reportable business segment is electric utility. See Note
21
for additional information.
Basic and Diluted Earnings per Common Share Calculation
To determine basic earnings per common share (EPS), preferred stock dividend requirements and redemption premium are deducted from net income before dividing by the average number of common shares outstanding. The effect of dilutive securities, calculated using the treasury stock method, assumes the issuance of common shares applicable to performance shares and restricted stock.
The following table reconciles Great Plains Energy's basic and diluted EPS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Year to Date
September 30
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Income
|
(millions, except per share amounts)
|
Net income
|
$
|
133.6
|
|
|
$
|
126.8
|
|
|
$
|
192.0
|
|
|
$
|
190.1
|
|
Less: preferred stock dividend requirements and redemption premium
|
0.9
|
|
|
0.4
|
|
|
1.7
|
|
|
1.2
|
|
Earnings available for common shareholders
|
$
|
132.7
|
|
|
$
|
126.4
|
|
|
$
|
190.3
|
|
|
$
|
188.9
|
|
Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding
|
154.6
|
|
|
154.2
|
|
|
154.5
|
|
|
154.1
|
|
Add: effect of dilutive securities
|
0.3
|
|
|
0.6
|
|
|
0.4
|
|
|
0.7
|
|
Diluted average number of common shares outstanding
|
154.9
|
|
|
154.8
|
|
|
154.9
|
|
|
154.8
|
|
Basic EPS
|
$
|
0.86
|
|
|
$
|
0.82
|
|
|
$
|
1.23
|
|
|
$
|
1.23
|
|
Diluted EPS
|
$
|
0.86
|
|
|
$
|
0.82
|
|
|
$
|
1.23
|
|
|
$
|
1.22
|
|
There were
no
anti-dilutive shares excluded from the computation of dilutive EPS for the three months ended and year to date September 30, 2016, and 2015.
Dividends Declared
In
November 2016
, Great Plains Energy's Board of Directors (Great Plains Energy Board) declared a quarterly dividend of
$0.2750
per share on Great Plains Energy's common stock. The common dividend is payable
December 20, 2016
, to shareholders of record as of
November 29, 2016
.
The Great Plains Energy Board also declared a regular quarterly dividend on Great Plains Energy's newly issued
7.00%
Series B Mandatory Convertible Preferred Stock (Series B Preferred Stock). The dividend will be payable
December 15, 2016
, to shareholders of record as of
December 1, 2016
. See Note 13 for additional information regarding the Series B Preferred Stock.
In
November 2016
, KCP&L's Board of Directors declared a cash dividend payable to Great Plains Energy of
$45 million
payable on
December 19, 2016
.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in Generally Accepted Accounting Principles (GAAP) when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, deferring the effective date of ASU No. 2014-09 one year, from January 1, 2017, to January 1, 2018. The Companies plan to adopt ASU No. 2014-09 on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Companies are evaluating the effect that ASU No. 2014-09 will have on their consolidated financial statements and related disclosures and have not yet selected a transition method nor have they determined the effect of the standard on their ongoing financial reporting.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
, which requires an entity that is a lessee to record a right-of-use asset and a lease liability for lease payments on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new guidance is effective for interim and annual periods beginning after December 15, 2018,
and is required to be applied using a modified retrospective approach
. The Companies are evaluating the effect that ASU No. 2016-02 will have on their consolidated financial statements and related disclosures and have not yet determined the effect of the standard on their ongoing financial reporting.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation-Stock Compensation
, which is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The new guidance is effective for interim and annual periods beginning after December 15, 2016, and early adoption is permitted. This guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. The Companies plan to adopt ASU No. 2016-09 effective January 1, 2017 and it is not expected to have a significant impact on their ongoing financial reporting.
2
. ANTICIPATED ACQUISITION OF WESTAR ENERGY, INC.
On May 29, 2016, Great Plains Energy entered into an Agreement and Plan of Merger (Merger Agreement) by and among Great Plains Energy, Westar, and, from and after its accession to the Merger Agreement, GP Star, Inc., a wholly owned subsidiary of Great Plains Energy in the State of Kansas (Merger Sub). Pursuant to the Merger Agreement, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into Westar, with Westar continuing as the surviving corporation. Upon closing, pursuant to the Merger Agreement, Great Plains Energy will acquire Westar for (i)
$51.00
in cash and (ii) a number, rounded to the nearest 1/10,000 of a share, of shares of Great Plains Energy common stock, equal to the Exchange Ratio (as described below) for each share of Westar common stock issued and outstanding immediately prior to the effective time of the merger, with Westar becoming a wholly owned subsidiary of Great Plains Energy.
The Exchange Ratio is calculated as follows:
If the volume-weighted average share price of Great Plains Energy common stock on the New York Stock Exchange for the twenty consecutive full trading days ending on (and including) the third trading day immediately prior to the closing date of the merger (the Great Plains Energy Average Stock Price) is:
(a) greater than
$33.2283
, the Exchange Ratio will be
0.2709
;
(b) greater than or equal to
$28.5918
but less than or equal to
$33.2283
, the Exchange Ratio will be an amount equal to the quotient obtained by dividing (x)
$9.00
by (y) the Great Plains Energy Average Stock Price; or
(c) less than
$28.5918
, the Exchange Ratio will be
0.3148
.
Financing
Great Plains Energy plans to finance the cash portion of the merger consideration with equity and debt financing, including (i)
$750 million
of mandatory convertible preferred equity pursuant to a stock purchase agreement with OCM Credit Portfolio LP (OMERS), (ii) approximately
$2.35 billion
of equity comprised of a combination of Great Plains Energy common stock and additional mandatory convertible preferred stock, which, as discussed below, was completed in October 2016, and (iii) approximately
$4.4 billion
in debt.
On May 29, 2016, in connection with the Merger Agreement, Great Plains Energy entered into a commitment letter for a 364-day senior unsecured bridge term loan facility in an aggregate principal amount of
$8.017 billion
(which has subsequently been reduced to
$5.1 billion
) to support the anticipated transaction and provide flexibility for the timing of long-term financing. See Note 10 for additional information.
On May 29, 2016, Great Plains Energy entered into a stock purchase agreement with OMERS, pursuant to which Great Plains Energy will issue and sell to OMERS
750,000
shares of preferred stock of Great Plains Energy designated as
7.25%
Mandatory Convertible Preferred Stock, Series A (Series A Preferred Stock), without par value, for an aggregate purchase price equal to
$750 million
at the closing of the merger. See Note
13
for additional information.
On October 3, 2016, Great Plains Energy completed a registered public offering of
60.5 million
shares of common stock, without par value, at a public offering price of
$26.45
per share, for total gross proceeds of approximately
$1.6 billion
(net proceeds of approximately
$1.55 billion
after the underwriting discount). Concurrent with this offering, Great Plains Energy also completed a registered public offering of
17.3 million
depositary shares, each
representing a 1/20th interest in a share of Great Plains Energy's Series B Preferred Stock, without par value, at a public offering price of
$50
per depositary share for total gross proceeds of
$862.5 million
(net proceeds of approximately
$836.6 million
after the underwriting discount). See Note
13
for additional information on the Series B Preferred Stock.
Regulatory and Shareholder Approvals
Great Plains Energy's anticipated acquisition of Westar was unanimously approved by the Great Plains Energy Board and Westar's Board of Directors (Westar Board). In September 2016, shareholders of Great Plains Energy and Westar approved all proposals necessary for Great Plains Energy's acquisition of Westar at each company's respective shareholder meeting. The anticipated acquisition remains subject to regulatory approvals from The State Corporation Commission of the State of Kansas (KCC), the Nuclear Regulatory Commission (NRC), The Federal Energy Regulatory Commission (FERC) and The Federal Communications Commission (FCC); as well as other customary conditions.
MPSC Jurisdiction
Great Plains Energy believes that the Public Service Commission of the State of Missouri (MPSC) does not have jurisdiction to approve or disapprove the anticipated acquisition of Westar.
In October 2016, the Midwest Energy Consumers Group (MECG) filed a complaint with the MPSC in which MECG asserted that MPSC approval was necessary in order for Great Plains Energy to acquire Westar and the MPSC subsequently issued an order requesting that a procedural schedule be established that would include an evidentiary hearing, oral argument, or both, on the issue of MPSC jurisdiction. The MPSC order required that the evidentiary hearing or oral argument occur no later than December 2016. If the MPSC ultimately decides to exercise its jurisdiction, Great Plains Energy could be required to file an application with the MPSC to approve the anticipated acquisition of Westar.
In October 2016, Great Plains Energy reached separate stipulations and agreements with the MPSC staff and the Office of the Public Counsel (OPC) in which the MPSC staff and OPC agreed that they would not file complaints alleging that MPSC approval was necessary in order for Great Plains Energy to acquire Westar. The stipulations and agreements impose certain conditions on Great Plains Energy, KCP&L and GMO in the areas of financing, ratemaking, customer service, corporate social responsibility and also include other general provisions. The stipulation and agreement with the MPSC staff, among other things, provides that retail rates for KCP&L Missouri and GMO customers will not increase as a result of the acquisition and that in the event KCP&L's or GMO's credit ratings are downgraded below investment grade as a result of the acquisition, KCP&L and GMO will be restricted from paying a dividend to Great Plains Energy unless approved by the MPSC or until their credit ratings are restored to investment grade. The stipulations and agreements must still be approved by the MPSC. Great Plains Energy and the MPSC staff have requested that the MPSC approve their stipulation and agreement by November 30, 2016.
KCC Approval
In June 2016, Great Plains Energy, KCP&L and Westar filed a joint application with KCC for approval of the anticipated acquisition of Westar by Great Plains Energy. Under applicable Kansas regulations, KCC has 300 days following the filing to rule on the transaction. Accordingly, a decision from KCC on this joint application is expected by April 2017. In October 2016, KCC issued an order addressing KCC's merger standards and whether the joint application is in conformity with these standards. The order allows certain intervenors to file for appropriate relief if they believe the joint application does not adequately address KCC's merger standards. If relief is requested and approved by KCC, the current joint application could be dismissed and Great Plains Energy, KCP&L and Westar could be required to file a new joint application. Great Plains Energy, KCP&L and Westar believe the current joint application is in conformity with KCC's merger standards but out of an abundance of caution, filed a motion with KCC in November 2016 requesting to provide supplemental testimony to address KCC's October 2016 order.
Other Approvals
In July 2016, Great Plains Energy and Westar filed applications with FERC and NRC for approval of the merger. In August 2016, the Securities and Exchange Commission (SEC) declared effective a registration statement including a joint proxy statement with Westar (the Proxy Statement Prospectus) used in connection with the Great Plains Energy and Westar special shareholder meetings that occurred in September 2016. In September 2016, shareholders of Great Plains Energy and Westar approved all proposals necessary for Great Plains Energy's acquisition of Westar at each company's respective shareholder meeting. In September 2016, Great Plains Energy and Westar filed their respective Pre-Merger Notification and Report forms with the Federal Trade Commission (FTC) and the Department of Justice (DOJ) under the Hart-Scott-Rodino (HSR) Act. In October 2016, the FTC granted Great Plains Energy's request for early termination of the waiting period under the HSR Act with respect to the anticipated acquisition, and the DOJ also notified Great Plains Energy that it has closed its investigation of the antitrust aspects of the anticipated acquisition.
Termination Fees
The Merger Agreement provides that in connection with the termination of the Merger Agreement under specified circumstances relating to a failure to obtain required regulatory approvals prior to May 31, 2017 (which date may be extended to November 30, 2017 under certain circumstances (the End Date)), a final and nonappealable order enjoining the consummation of the merger in connection with regulatory approvals or failure by Great Plains Energy to consummate the merger once all of the conditions have been satisfied, Great Plains Energy will be required to pay Westar a termination fee of
$380 million
. In addition, in the event that the Merger Agreement is terminated by (a) either party because the closing has not occurred by the End Date or (b) Westar, as a result of Great Plains Energy's uncured breach of the Merger Agreement, and prior to such termination, an acquisition proposal for Great Plains Energy is publicly disclosed or made to Great Plains Energy, if Great Plains Energy enters into an agreement or consummates a transaction with respect to an acquisition proposal within twelve months following such termination, then Great Plains Energy may be required to pay Westar a termination fee of
$180 million
. Similarly, in the event that the Merger Agreement is terminated by (x) either party because the closing has not occurred by the End Date or (y) Great Plains Energy, as a result of Westar's uncured breach of the Merger Agreement, and prior to such termination, an acquisition proposal for Westar is publicly disclosed or made to Westar, if Westar enters into an agreement or consummates a transaction with respect to an acquisition proposal within twelve months following such termination, then Westar may be required to pay Great Plains Energy a termination fee of
$280 million
.
Shareholder Lawsuits
Following the announcement of the Merger Agreement, two putative class action complaints (which were subsequently consolidated) (Consolidated Putative Class Action) and a derivative complaint (Derivative Action) on behalf of nominal defendant Westar challenging the merger were filed in the District Court of Shawnee County, Kansas. A separate putative class action complaint (Missouri Action) was filed in the Circuit Court of Jackson County, Missouri, at Kansas City, Sixteenth Judicial District on behalf of a putative class of Great Plains Energy shareholders. The complaint in the Consolidated Putative Class Action names as defendants Westar, the members of the Westar Board and Great Plains Energy. The complaint in the Missouri Action names as defendants Great Plains Energy and the members of the Great Plains Energy Board. The complaint in the Derivative Action names as defendants the members of the Westar Board and Great Plains Energy, with Westar named as a nominal defendant. The complaint in the Consolidated Putative Class Action asserts that the members of the Westar Board breached their fiduciary duties to Westar shareholders in connection with the proposed merger, including the duty of candor, and that Westar and Great Plains Energy aided and abetted such breaches of fiduciary duties. The complaint in the Derivative Action asserts breach of fiduciary duty claims against members of the Westar Board, and aiding and abetting claims against Great Plains Energy, on behalf of nominal defendant Westar. The complaint in the Missouri Action asserts that the members of the Great Plains Energy Board breached their fiduciary duty of candor in connection with the proposed merger by allegedly failing to disclose certain facts in the Company's preliminary Form S-4. Among other remedies, the plaintiffs in each case seek to enjoin the merger, in addition to reimbursement of costs.
In September 2016, the plaintiff in the Missouri Action agreed to withdraw its motion for a preliminary injunction and in exchange, Great Plains Energy made additional supplemental disclosures to the Proxy Statement/Prospectus. This agreement does not release or otherwise prejudice any potential claims of any member of the putative class and does not constitute any admission by any of the defendants as to the merits of any claims.
In September 2016, the parties in the Consolidated Putative Class Action and the Derivative Action independently agreed to withdraw requests for injunctive relief and otherwise agreed in principle to dismissing the actions with prejudice and to providing releases. In exchange, the parties in the Derivative Action agreed, and Westar made, supplemental disclosures to the Proxy Statement/Prospectus and the parties in the Consolidated Putative Class Action agreed, and Westar: (i) made supplemental disclosures and (ii) granted waivers of the prohibition on requesting a waiver of the standstill provisions in the confidentiality and standstill agreements executed by the bidders that participated in the Westar sale process. Because Great Plains Energy is a defendant in the Consolidated Putative Class Action and the Derivative Action and is a party to these agreements, Great Plains Energy also made the same supplemental disclosures that Westar made. These agreements do not constitute any admission by any of the defendants as to the merits of any claims.
3. SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Great Plains Energy Other Operating Activities
|
Year to Date September 30
|
2016
|
|
2015
|
Cash flows affected by changes in:
|
(millions)
|
Receivables
|
$
|
(45.9
|
)
|
|
$
|
(13.2
|
)
|
Accounts receivable pledged as collateral
|
(15.0
|
)
|
|
(19.0
|
)
|
Fuel inventories
|
19.8
|
|
|
(10.8
|
)
|
Materials and supplies
|
(5.3
|
)
|
|
(2.9
|
)
|
Accounts payable
|
(119.8
|
)
|
|
(121.9
|
)
|
Accrued taxes
|
97.2
|
|
|
89.2
|
|
Accrued interest
|
16.7
|
|
|
16.9
|
|
Deferred refueling outage costs
|
7.5
|
|
|
(12.8
|
)
|
Pension and post-retirement benefit obligations
|
53.2
|
|
|
48.8
|
|
Allowance for equity funds used during construction
|
(4.3
|
)
|
|
(3.8
|
)
|
Fuel recovery mechanisms
|
(16.8
|
)
|
|
36.6
|
|
Other
|
(11.7
|
)
|
|
2.6
|
|
Total other operating activities
|
$
|
(24.4
|
)
|
|
$
|
9.7
|
|
Cash paid during the period:
|
|
|
|
|
|
Interest
|
$
|
130.2
|
|
|
$
|
121.2
|
|
Income taxes
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Non-cash investing activities:
|
|
|
|
|
Liabilities accrued for capital expenditures
|
$
|
30.7
|
|
|
$
|
23.4
|
|
|
|
|
|
|
|
|
|
|
KCP&L Other Operating Activities
|
Year to Date September 30
|
2016
|
|
2015
|
Cash flows affected by changes in:
|
(millions)
|
Receivables
|
$
|
(53.5
|
)
|
|
$
|
(6.2
|
)
|
Fuel inventories
|
12.7
|
|
|
(11.6
|
)
|
Materials and supplies
|
(3.8
|
)
|
|
(4.0
|
)
|
Accounts payable
|
(80.3
|
)
|
|
(83.1
|
)
|
Accrued taxes
|
179.3
|
|
|
162.3
|
|
Accrued interest
|
8.9
|
|
|
12.3
|
|
Deferred refueling outage costs
|
7.5
|
|
|
(12.8
|
)
|
Pension and post-retirement benefit obligations
|
53.7
|
|
|
48.8
|
|
Allowance for equity funds used during construction
|
(4.0
|
)
|
|
(2.9
|
)
|
Fuel recovery mechanisms
|
(31.0
|
)
|
|
1.8
|
|
Other
|
(14.8
|
)
|
|
(1.0
|
)
|
Total other operating activities
|
$
|
74.7
|
|
|
$
|
103.6
|
|
Cash paid during the period:
|
|
|
|
|
|
Interest
|
$
|
86.7
|
|
|
$
|
79.1
|
|
Non-cash investing activities:
|
|
|
|
|
Liabilities accrued for capital expenditures
|
$
|
25.7
|
|
|
$
|
15.7
|
|
4. RECEIVABLES
Great Plains Energy's and KCP&L's receivables are detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
December 31
|
|
|
2016
|
|
|
2015
|
|
Great Plains Energy
|
|
(millions)
|
|
Customer accounts receivable - billed
|
|
$
|
55.3
|
|
|
|
$
|
3.4
|
|
|
Customer accounts receivable - unbilled
|
|
89.3
|
|
|
|
71.6
|
|
|
Allowance for doubtful accounts - customer accounts receivable
|
|
(5.1
|
)
|
|
|
(3.8
|
)
|
|
Other receivables
|
|
54.6
|
|
|
|
76.5
|
|
|
Total
|
|
$
|
194.1
|
|
|
|
$
|
147.7
|
|
|
KCP&L
|
|
|
|
|
|
|
|
|
Customer accounts receivable - billed
|
|
$
|
54.9
|
|
|
|
$
|
2.8
|
|
|
Customer accounts receivable - unbilled
|
|
70.8
|
|
|
|
58.8
|
|
|
Allowance for doubtful accounts - customer accounts receivable
|
|
(2.7
|
)
|
|
|
(1.8
|
)
|
|
Other receivables
|
|
45.7
|
|
|
|
69.4
|
|
|
Total
|
|
$
|
168.7
|
|
|
|
$
|
129.2
|
|
|
Great Plains Energy's and KCP&L's other receivables at
September 30, 2016
, and December 31,
2015
, consisted primarily of receivables from partners in jointly owned electric utility plants and wholesale sales receivables.
Sale of Accounts Receivable – KCP&L and GMO
KCP&L and GMO sell all of their retail electric accounts receivable to their wholly owned subsidiaries, KCP&L Receivables Company and GMO Receivables Company, respectively, which in turn sell an undivided percentage ownership interest in the accounts receivable to Victory Receivables Corporation, an independent outside investor. Each of KCP&L Receivables Company's and GMO Receivables Company's sale of the undivided percentage ownership interest in accounts receivable to Victory Receivables Corporation is accounted for as a secured borrowing with accounts receivable pledged as collateral and a corresponding short-term collateralized note payable recognized on the balance sheets. At
September 30, 2016
, and December 31,
2015
, Great Plains Energy's accounts receivable pledged as collateral and the corresponding short-term collateralized note payable were
$190.0 million
and
$175.0 million
, respectively. At
September 30, 2016
, and December 31,
2015
, KCP&L's accounts receivable
pledged as collateral and the corresponding short-term collateralized note payable were
$110.0 million
. KCP&L's agreement expires in September 2017 and allows for
$110 million
in aggregate outstanding principal amount of borrowings at any time. GMO's agreement expires in September 2017 and allows for
$65 million
in aggregate outstanding principal of borrowings from mid-November through mid-June and then increases to
$80 million
from mid-June through mid-November.
5. NUCLEAR PLANT
KCP&L owns
47%
of Wolf Creek Generating Station (Wolf Creek), its only nuclear generating unit. Wolf Creek is located in Coffey County, Kansas, just northeast of Burlington, Kansas. Wolf Creek's operating license expires in 2045. Wolf Creek is regulated by the NRC with respect to licensing, operations and safety-related requirements.
Spent Nuclear Fuel and High-Level Radioactive Waste
Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is responsible for the permanent disposal of spent nuclear fuel. Wolf Creek historically paid the DOE a quarterly fee of one-tenth of a cent for each kWh of net nuclear generation delivered and sold for the future disposal of spent nuclear fuel. In May 2014, this fee was set to zero.
In 2010, the DOE filed a motion with the NRC to withdraw its then pending application to the NRC to construct a national repository for the disposal of spent nuclear fuel and high-level radioactive waste at Yucca Mountain, Nevada. An NRC board denied the DOE's motion to withdraw its application. In 2011, the NRC reexamined its decision and ordered the licensing board, consistent with budgetary limitations, to close out its work on the DOE's application. In August 2013, a federal court of appeals ruled that the NRC must resume its review of the DOE's application.
Wolf Creek is currently evaluating alternatives for expanding its existing on-site spent nuclear fuel storage to provide additional capacity prior to 2025. Management cannot predict when, or if, an off-site storage site or alternative disposal site will be available to receive Wolf Creek's spent nuclear fuel and will continue to monitor this activity.
Low-Level Radioactive Waste
Wolf Creek disposes of most of its low-level radioactive waste (Class A waste) at an existing third-party repository in Utah. Management expects that the site located in Utah will remain available to Wolf Creek for disposal of its Class A waste. Wolf Creek has contracted with a waste processor that will process, take title and dispose in another state most of the remainder of Wolf Creek's low-level radioactive waste (Classes B and C waste, which is higher in radioactivity but much lower in volume). Should on-site waste storage be needed in the future, Wolf Creek has current storage capacity on site for about four years' generation of Classes B and C waste and believes it will be able to expand that storage capacity as needed if it becomes necessary to do so.
Nuclear Decommissioning Trust Fund
The following table summarizes the change in Great Plains Energy's and KCP&L's nuclear decommissioning trust fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
2016
|
|
December 31
2015
|
Decommissioning Trust
|
|
(millions)
|
|
Beginning balance January 1
|
|
$
|
200.7
|
|
|
|
|
$
|
199.0
|
|
|
Contributions
|
|
2.5
|
|
|
|
|
3.3
|
|
|
Earned income, net of fees
|
|
3.0
|
|
|
|
|
3.4
|
|
|
Net realized gains
|
|
0.2
|
|
|
|
|
0.7
|
|
|
Net unrealized gains (losses)
|
|
11.9
|
|
|
|
|
(5.7
|
)
|
|
Ending balance
|
|
$
|
218.3
|
|
|
|
|
$
|
200.7
|
|
|
The nuclear decommissioning trust is reported at fair value on the balance sheets and is invested in assets as detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
December 31, 2015
|
|
|
Cost
Basis
|
|
Unrealized Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Cost
Basis
|
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
(millions)
|
Equity securities
|
$
|
92.4
|
|
|
|
$
|
56.2
|
|
|
|
|
$
|
(1.2
|
)
|
|
|
|
$
|
147.4
|
|
|
|
|
$
|
89.6
|
|
|
|
|
$
|
47.9
|
|
|
|
|
$
|
(2.1
|
)
|
|
|
|
$
|
135.4
|
|
|
Debt securities
|
64.5
|
|
|
|
4.8
|
|
|
|
|
—
|
|
|
|
|
69.3
|
|
|
|
|
59.6
|
|
|
|
|
2.6
|
|
|
|
|
(0.5
|
)
|
|
|
|
61.7
|
|
|
Other
|
1.6
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1.6
|
|
|
|
|
3.6
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
3.6
|
|
|
Total
|
$
|
158.5
|
|
|
|
$
|
61.0
|
|
|
|
|
$
|
(1.2
|
)
|
|
|
|
$
|
218.3
|
|
|
|
|
$
|
152.8
|
|
|
|
|
$
|
50.5
|
|
|
|
|
$
|
(2.6
|
)
|
|
|
|
$
|
200.7
|
|
|
The weighted average maturity of debt securities held by the trust at
September 30, 2016
, was approximately
8
years. The costs of securities sold are determined on the basis of specific identification. The following table summarizes the realized gains and losses from the sale of securities in the nuclear decommissioning trust fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Year to Date
September 30
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(millions)
|
Realized gains
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
1.5
|
|
|
$
|
3.2
|
|
Realized losses
|
(0.3
|
)
|
|
(0.5
|
)
|
|
(1.3
|
)
|
|
(2.3
|
)
|
6
. REGULATORY MATTERS
KCP&L Missouri 2016 Rate Case Proceedings
In July 2016, KCP&L filed an application with the MPSC to request an increase to its retail revenues of
$62.9 million
, with a return on equity of
9.9%
and a rate-making equity ratio of
49.88%
. The request reflects increases in infrastructure investment costs, costs for regional transmission lines, property tax costs and costs to comply with environmental and cybersecurity mandates. KCP&L also requested an additional
$27.2 million
increase associated with rebasing fuel and purchased power expense. An evidentiary hearing is scheduled to occur in February 2017. New rates are expected to be effective in May 2017.
GMO Missouri 2016 Rate Case Proceedings
In February 2016, GMO filed an application with the MPSC to request an increase to its retail revenues of
$59.3 million
, with a return on equity of
9.9%
and a rate-making equity ratio of
54.83%
. The request included recovery of increased transmission and property tax expenses as well as costs for infrastructure and system improvements to continue to provide reliable electric service.
In September 2016, GMO, the MPSC staff and certain intervenors reached several non-unanimous stipulations and agreements resolving all issues in the case. In September 2016, the MPSC issued an order for GMO approving the non-unanimous stipulations and agreements and authorizing an increase in annual revenues of
$3.0 million
and a return on equity of
9.5%
to
9.75%
. The rates established by the order will take effect no later than December 22, 2016.
KCP&L Kansas 2015 Rate Case Proceedings
In September 2015, KCC issued an order for KCP&L authorizing an increase in annual revenues of
$48.7 million
, a return on equity of
9.3%
and a rate-making equity ratio of
50.48%
. KCP&L filed a Petition for Judicial Review with the Court of Appeals of Kansas in November 2015 regarding various issues, which was denied in March 2016. The rates established by the order took effect on October 1, 2015.
KCP&L Missouri 2015 Rate Case Proceedings
In September 2015, the MPSC issued an order for KCP&L authorizing an increase in annual revenues of
$89.7 million
, a
return on equity of
9.5%
and a rate-making equity ratio of approximately
50.09%
. The MPSC also
approved KCP&L's request to implement a Fuel Adjustment Clause. The rates established by the order took effect on September 29, 2015, and are effective unless and until modified by the MPSC or stayed by a court. Notices of Appeal of the September 2015 MPSC order were filed with the Missouri Court of Appeals, Western District (Court of Appeals), by KCP&L in October 2015 and by MECG in November 2015 regarding various issues. In September 2016, the Court of Appeals upheld the September 2015 MPSC order in all respects. KCP&L and MECG have filed Motions for Rehearing and Applications for Transfer to the Supreme Court of Missouri with the Court of Appeals.
7. GOODWILL
Accounting rules require goodwill to be tested for impairment annually and when an event occurs indicating the possibility that an impairment exists. The annual impairment test for the
$169.0 million
of GMO acquisition goodwill was conducted on September 1, 2016. The goodwill impairment test is a two step process. The first step compares the fair value of a reporting unit to its carrying amount, including goodwill, to identify potential impairment. If the carrying amount exceeds the fair value of the reporting unit, the second step of the test is performed, consisting of assignment of the reporting unit's fair value to its assets and liabilities to determine an implied fair value of goodwill, which is compared to the carrying amount of goodwill to determine the impairment loss, if any, to be recognized in the financial statements. Great Plains Energy's regulated electric utility operations are considered one reporting unit for assessment of impairment, as they are included within the same operating segment and have similar economic characteristics. The determination of fair value of the reporting unit consisted of two valuation techniques: an income approach consisting of a discounted cash flow analysis and a market approach consisting of a determination of reporting unit invested capital using market multiples derived from the historical revenue, earnings before interest, income taxes, depreciation and amortization (EBITDA), net utility asset values and market prices of stock of peer companies. The results of the two techniques were evaluated and weighted to determine a point within the range that management considered representative of fair value for the reporting unit. Fair value of the reporting unit exceeded the carrying amount, including goodwill; therefore, there was no impairment of goodwill.
8. PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Great Plains Energy maintains defined benefit pension plans for the majority of KCP&L's and GMO's active and inactive employees, including officers, and its
47%
ownership share of Wolf Creek Nuclear Operating Corporation (WCNOC) defined benefit plans. For the majority of employees, pension benefits under these plans reflect the employees' compensation, years of service and age at retirement; however, for union employees hired after October 1, 2013, the benefits are derived from a cash balance account formula. Effective in 2014, the non-union plan was closed to future employees. Great Plains Energy also provides certain post-retirement health care and life insurance benefits for substantially all retired employees of KCP&L, GMO and its 47% ownership share of WCNOC.
KCP&L and GMO record pension and post-retirement expense in accordance with rate orders from the MPSC and KCC that allow the difference between pension and post-retirement costs under GAAP and costs for ratemaking to be recognized as a regulatory asset or liability. This difference between financial and regulatory accounting methods is due to timing and will be eliminated over the life of the plans.
The following tables provide Great Plains Energy's components of net periodic benefit costs prior to the effects of capitalization and sharing with joint owners of power plants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
Three Months Ended September 30
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Components of net periodic benefit costs
|
|
(millions)
|
Service cost
|
|
$
|
10.5
|
|
|
$
|
11.4
|
|
|
$
|
0.7
|
|
|
$
|
0.8
|
|
Interest cost
|
|
13.2
|
|
|
12.5
|
|
|
1.5
|
|
|
1.7
|
|
Expected return on plan assets
|
|
(12.3
|
)
|
|
(13.0
|
)
|
|
(0.8
|
)
|
|
(0.7
|
)
|
Prior service cost
|
|
0.2
|
|
|
0.2
|
|
|
0.3
|
|
|
0.7
|
|
Recognized net actuarial (gain)/loss
|
|
13.0
|
|
|
12.9
|
|
|
(0.3
|
)
|
|
0.1
|
|
Transition obligation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Net periodic benefit costs before regulatory adjustment
|
|
24.6
|
|
|
24.0
|
|
|
1.4
|
|
|
2.7
|
|
Regulatory adjustment
|
|
(1.1
|
)
|
|
(3.5
|
)
|
|
1.4
|
|
|
1.4
|
|
Net periodic benefit costs
|
|
$
|
23.5
|
|
|
$
|
20.5
|
|
|
$
|
2.8
|
|
|
$
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
Year to Date September 30
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Components of net periodic benefit costs
|
|
(millions)
|
Service cost
|
|
$
|
31.5
|
|
|
$
|
34.0
|
|
|
$
|
2.0
|
|
|
$
|
2.5
|
|
Interest cost
|
|
39.7
|
|
|
37.7
|
|
|
4.6
|
|
|
5.1
|
|
Expected return on plan assets
|
|
(36.9
|
)
|
|
(38.8
|
)
|
|
(2.3
|
)
|
|
(2.2
|
)
|
Prior service cost
|
|
0.5
|
|
|
0.6
|
|
|
0.9
|
|
|
2.3
|
|
Recognized net actuarial (gain)/loss
|
|
38.9
|
|
|
38.5
|
|
|
(1.1
|
)
|
|
0.2
|
|
Transition obligation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Net periodic benefit costs before regulatory adjustment
|
|
73.7
|
|
|
72.0
|
|
|
4.1
|
|
|
8.0
|
|
Regulatory adjustment
|
|
(3.1
|
)
|
|
(9.3
|
)
|
|
4.4
|
|
|
4.2
|
|
Net periodic benefit costs
|
|
$
|
70.6
|
|
|
$
|
62.7
|
|
|
$
|
8.5
|
|
|
$
|
12.2
|
|
Year to date
September 30, 2016
, Great Plains Energy contributed
$23.6 million
to the pension plans and expects to contribute an additional
$52.4 million
in
2016
to satisfy the Employee Retirement Income Security Act of 1974, as amended (ERISA) funding requirements and the MPSC and KCC rate orders, the majority of which is expected to be paid by KCP&L. Also in
2016
, Great Plains Energy expects to make contributions of
$5.1 million
to the post-retirement benefit plans, the majority of which is expected to be paid by KCP&L.
9. EQUITY COMPENSATION
Great Plains Energy's Long-Term Incentive Plan is an equity compensation plan approved by Great Plains Energy's shareholders. The Long-Term Incentive Plan permits the grant of restricted stock, restricted stock units, bonus shares, stock options, stock appreciation rights, limited stock appreciation rights, director shares, director deferred share units and performance shares to directors, officers and other employees of Great Plains Energy and KCP&L. Forfeiture rates are based on historical forfeitures and future expectations and are reevaluated annually.
The following table summarizes Great Plains Energy's and KCP&L's equity compensation expense and the associated income tax benefit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Year to Date
September 30
|
|
|
|
2016
|
2015
|
2016
|
2015
|
Great Plains Energy
|
|
(millions)
|
Equity compensation expense
|
|
$
|
0.4
|
|
|
$
|
3.7
|
|
|
|
$
|
3.9
|
|
|
$
|
4.6
|
|
Income tax benefit
|
|
—
|
|
|
1.4
|
|
|
|
1.3
|
|
|
1.7
|
|
KCP&L
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation expense
|
|
$
|
0.2
|
|
|
$
|
2.5
|
|
|
|
$
|
2.5
|
|
|
$
|
3.1
|
|
Income tax benefit
|
|
—
|
|
|
0.9
|
|
|
|
0.8
|
|
|
1.1
|
|
Performance Shares
Performance share activity year to date September 30, 2016, is summarized in the following table. Performance adjustment represents the number of shares of common stock related to performance shares ultimately issued that can vary from the number of performance shares initially granted depending on Great Plains Energy's performance over a stated period of time.
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Shares
|
|
Grant Date
Fair Value*
|
Beginning balance January 1, 2016
|
|
609,010
|
|
|
|
|
$
|
25.60
|
|
|
Granted
|
|
225,204
|
|
|
|
|
31.41
|
|
|
Earned
|
|
(306,953
|
)
|
|
|
|
24.22
|
|
|
Forfeited
|
|
(1,714
|
)
|
|
|
|
27.61
|
|
|
Performance adjustment
|
|
99,553
|
|
|
|
|
24.16
|
|
|
Ending balance September 30, 2016
|
|
625,100
|
|
|
|
|
28.13
|
|
|
* weighted-average
At
September 30, 2016
, the remaining weighted-average contractual term was
1.4
years. There were
no
shares granted for the three months ended September 30, 2016. The weighted-average grant-date fair value of shares granted was
$31.41
year to date September 30, 2016. The weighted-average grant-date fair value of shares granted was
$22.46
and
$24.03
for the three months ended and year to date September 30,
2015
, respectively. At
September 30, 2016
, there was
$7.7 million
of total unrecognized compensation expense, net of forfeiture rates, related to performance shares granted under the Long-Term Incentive Plan, which will be recognized over the remaining weighted-average contractual term. The total fair value of performance shares earned and paid was
$7.4 million
and
$0.5 million
year to date September 30,
2016
, and
2015
, respectively.
The fair value of performance share awards is estimated using the market value of the Company's stock at the valuation date and a Monte Carlo simulation technique that incorporates assumptions for inputs of expected volatilities, dividend yield and risk-free rates. Expected volatility is based on daily stock price change during a historical period commensurate with the remaining term of the performance period of the grant. The risk-free rate is based upon the rate at the time of the evaluation for zero-coupon government bonds with a maturity consistent with the remaining performance period of the grant. The dividend yield is based on the most recent dividends paid and the actual closing stock price on the valuation date. For shares granted in
2016
, inputs for expected volatility, dividend yield and risk-free rates were
18%
,
3.61%
and
0.94%
, respectively.
Restricted Stock
Restricted stock activity year to date September 30, 2016, is summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
Restricted Stock
|
|
Grant Date
Fair Value*
|
Beginning balance January 1, 2016
|
|
231,508
|
|
|
|
|
$
|
24.78
|
|
|
Granted and issued
|
|
96,053
|
|
|
|
|
29.41
|
|
|
Vested
|
|
(73,417
|
)
|
|
|
|
22.69
|
|
|
Forfeited
|
|
(572
|
)
|
|
|
|
27.51
|
|
|
Ending balance September 30, 2016
|
|
253,572
|
|
|
|
|
27.13
|
|
|
* weighted-average
At
September 30, 2016
, the remaining weighted-average contractual term was
1.3
years. There were
no
shares granted for the three months ended September 30, 2016. The weighted-average grant-date fair value of shares granted was
$29.41
year to date September 30, 2016. The weighted-average grant-date fair value of shares granted was
$24.20
and
$25.88
for the three months ended and year to date September 30, 2015, respectively. At
September 30, 2016
, there was
$3.2 million
of total unrecognized compensation expense, net of forfeiture rates, related to nonvested restricted stock granted under the Long-Term Incentive Plan, which will be recognized over the remaining weighted-average contractual term. Total fair value of shares vested was
$0.1 million
and
$1.7 million
for the three months ended and year to date September 30, 2016, respectively. Total fair value of shares vested was
$0.1 million
and
$2.1 million
for the three months ended and year to date September 30,
2015
, respectively.
10
. SHORT-TERM BORROWINGS AND SHORT-TERM BANK LINES OF CREDIT
Great Plains Energy's $200 Million Revolving Credit Facility
Great Plains Energy's
$200 million
revolving credit facility with a group of banks expires in
October 2019
. The facility's terms permit transfers of unused commitments between this facility and the KCP&L and GMO facilities discussed below, with the total amount of the facility not exceeding
$400 million
at any one time. A default by Great Plains Energy or any of its significant subsidiaries on other indebtedness totaling more than $50.0 million is a default under the facility. Under the terms of this facility, Great Plains Energy is required to maintain a consolidated indebtedness to consolidated capitalization ratio, as defined in the facility, not greater than 0.65 to 1.00 at all times. At
September 30, 2016
, Great Plains Energy was
in compliance
with this covenant. In June 2016, the facility was amended, among other things, to increase the maximum consolidated indebtedness to consolidated capitalization ratio of 0.65 to 1.00 to a level such that, if Great Plains Energy would not be in compliance with the covenant as of the date of the closing of the anticipated acquisition of Westar, the ratio would increase up to a maximum of 0.75 to 1.00 for one year. At
September 30, 2016
, Great Plains Energy had
$104.0 million
of outstanding cash borrowings at a weighted-average interest rate of
2.06%
and had issued
$0.2 million
letters of credit under the credit facility. At
December 31, 2015
, Great Plains Energy had
$10.0 million
of outstanding cash borrowings at a weighted-average interest rate of
1.94%
and had issued
$0.2 million
letters of credit under the credit facility.
KCP&L's $600 Million Revolving Credit Facility and Commercial Paper
KCP&L's
$600 million
revolving credit facility with a group of banks provides support for its issuance of commercial paper and other general corporate purposes and expires in
October 2019
. Great Plains Energy and KCP&L may transfer up to
$200 million
of unused commitments between Great Plains Energy's and KCP&L's facilities.
A default by KCP&L on other indebtedness totaling more than $50.0 million is a default under the facility. Under the terms of this facility, KCP&L is required to maintain a consolidated indebtedness to consolidated capitalization ratio, as defined in the facility, not greater than 0.65 to 1.00 at all times.
At
September 30, 2016
, KCP&L was
in compliance
with this covenant. At
September 30, 2016
, KCP&L had
no
commercial paper outstanding, had issued letters of credit totaling
$2.8 million
and had
no
outstanding cash borrowings under the credit facility. At
December 31, 2015
, KCP&L had
$180.3 million
of commercial paper outstanding at a weighted-average interest rate of
0.70%
, had issued letters of credit totaling
$2.7 million
and had
no
outstanding cash borrowings under the credit facility.
GMO's $450 Million Revolving Credit Facility and Commercial Paper
GMO's
$450 million
revolving credit facility with a group of banks provides support for its issuance of commercial paper and other general corporate purposes and expires in
October 2019
. Great Plains Energy and GMO may transfer up to
$200 million
of unused commitments between Great Plains Energy's and GMO's facilities.
A default by GMO or any of its significant subsidiaries on other indebtedness totaling more than $50.0 million is a default under the facility. Under the terms of this facility, GMO is required to maintain a consolidated indebtedness to consolidated capitalization ratio, as defined in the facility, not greater than 0.65 to 1.00 at all times.
At
September 30, 2016
, GMO was
in compliance
with this covenant. At
September 30, 2016
, GMO had
$157.1 million
of commercial paper outstanding at a weighted-average interest rate of
0.71%
, had issued letters of credit totaling
$2.1 million
and had
no
outstanding cash borrowings under the credit facility. At
December 31, 2015
, GMO had
$43.7 million
commercial paper outstanding at a weighted-average interest rate of
0.65%
, had issued letters of credit totaling
$2.5 million
and had
no
outstanding cash borrowings under the credit facility.
Great Plains Energy's $5.1 Billion Term Loan Facility
In connection with the Merger Agreement, Great Plains Energy entered into a commitment letter for a 364-day senior unsecured bridge term loan facility, originally for an aggregate principal amount of
$8.017 billion
to support the anticipated transaction and provide flexibility for the timing of long-term financing. The aggregate principal amount of the facility has been reduced most recently in connection with the October 2016 Great Plains Energy common stock and depositary share offerings. As of November 3, 2016, the aggregate principal amount of the facility was
$5.1 billion
.
11. LONG-TERM DEBT
Great Plains Energy's and KCP&L's long-term debt is detailed in the following table.
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|
|
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|
September 30
|
|
|
December 31
|
|
Year Due
|
|
2016
|
|
2015
|
KCP&L
|
|
|
|
(millions)
|
General Mortgage Bonds
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|
|
|
|
|
|
|
|
2.47% EIRR bonds
(a)
|
2017-2035
|
|
|
$
|
110.5
|
|
|
|
|
$
|
110.5
|
|
7.15% Series 2009A (8.59% rate)
(b)
|
2019
|
|
|
400.0
|
|
|
|
|
400.0
|
|
Senior Notes
|
|
|
|
|
|
|
|
|
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|
5.85% Series (5.72% rate)
(b)
|
2017
|
|
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250.0
|
|
|
|
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250.0
|
|
6.375% Series (7.49% rate)
(b)
|
2018
|
|
|
350.0
|
|
|
|
|
350.0
|
|
3.15% Series
|
2023
|
|
|
300.0
|
|
|
|
|
300.0
|
|
3.65% Series
|
2025
|
|
|
350.0
|
|
|
|
|
350.0
|
|
6.05% Series (5.78% rate)
(b)
|
2035
|
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250.0
|
|
|
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250.0
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5.30% Series
|
2041
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|
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400.0
|
|
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400.0
|
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EIRR Bonds
|
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|
|
|
|
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0.76% Series 2007A and 2007B
(c)
|
2035
|
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146.5
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|
|
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146.5
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|
2.875% Series 2008
|
2038
|
|
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23.4
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|
|
23.4
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Current maturities
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(281.0
|
)
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—
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Unamortized discount and debt issuance costs
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(15.9
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)
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(17.3
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)
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Total KCP&L excluding current maturities
(d)
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2,283.5
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2,563.1
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Other Great Plains Energy
|
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GMO First Mortgage Bonds 9.44% Series
|
2017-2021
|
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5.7
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6.8
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GMO Senior Notes
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8.27% Series
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2021
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80.9
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80.9
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3.49% Series A
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2025
|
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125.0
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|
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125.0
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4.06% Series B
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2033
|
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75.0
|
|
|
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75.0
|
|
4.74% Series C
|
2043
|
|
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150.0
|
|
|
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150.0
|
|
GMO Medium Term Notes
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7.33% Series
|
2023
|
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3.0
|
|
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3.0
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|
7.17% Series
|
2023
|
|
|
7.0
|
|
|
|
|
7.0
|
|
Great Plains Energy Senior Notes
|
|
|
|
|
|
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6.875% Series (7.33% rate)
(b)
|
2017
|
|
|
100.0
|
|
|
|
|
100.0
|
|
4.85% Series
|
2021
|
|
|
350.0
|
|
|
|
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350.0
|
|
5.292% Series
|
2022
|
|
|
287.5
|
|
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287.5
|
|
Current maturities
|
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|
(101.1
|
)
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(1.1
|
)
|
Unamortized discount and premium, net and debt issuance costs
|
|
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|
(1.9
|
)
|
|
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|
(2.1
|
)
|
Total Great Plains Energy excluding current maturities
(d)
|
|
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|
$
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3,364.6
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$
|
3,745.1
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(a)
|
Weighted-average interest rates at
September 30, 2016
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(b)
|
Rate after amortizing gains/losses recognized in other comprehensive income (OCI) on settlements of interest rate hedging instruments
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(d)
|
At September 30, 2016, and December 31, 2015, does not include
$50.0 million
and
$21.9 million
of secured Series 2005 Environmental Improvement Revenue Refunding (EIRR) bonds because the bonds were repurchased in September 2015 and are held by KCP&L
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12. COMMON SHAREHOLDERS' EQUITY
Great Plains Energy has an effective shelf registration statement for the sale of unlimited amounts of securities with the SEC that became effective in March 2015 and expires in March 2018. In September 2016, Great Plains Energy filed a post-effective amendment to its shelf registration statement to register depositary shares and preference stock among the types of securities that Great Plains Energy may offer and sell.
In September 2016, the Great Plains Energy shareholders approved an amendment to Great Plains Energy's articles of incorporation, increasing the authorized number of shares of common stock, without par value, to
600 million
shares from
250 million
shares.
In October 2016, Great Plains Energy completed a registered public offering of
60.5 million
shares of common stock, without par value, at a public offering price of
$26.45
per share, for total gross proceeds of approximately
$1.6 billion
(net proceeds of approximately
$1.55 billion
after underwriting discount). Great Plains Energy plans to use proceeds from the offering to finance a portion of the cash consideration for the anticipated acquisition of Westar.
13
. PREFERRED STOCK
Cumulative Preferred Stock
In
August 2016,
Great Plains Energy redeemed its
390,000
shares of outstanding Cumulative Preferred Stock, par value
$100
per share, for a total redemption price of
$40.1 million
. Great Plains Energy redeemed all outstanding shares of its (i)
3.80%
Preferred for
$103.70
per share, plus accrued and unpaid dividends of
$0.75
per share, for a total redemption price of
$104.45
per share, (ii)
4.50%
Preferred for
$101.00
per share, plus accrued and unpaid dividends of
$0.89
per share, for a total redemption price of
$101.89
per share, (iii)
4.20%
Preferred for
$102.00
per share, plus accrued and unpaid dividends of
$0.83
per share, for a total redemption price of
$102.83
per share and (iv)
4.35%
Preferred for
$101.00
per share, plus accrued and unpaid dividends of
$0.86
per share, for a total redemption price of
$101.86
per share.
Series A Mandatory Convertible Preferred Stock
On May 29, 2016, Great Plains Energy entered into a stock purchase agreement with OMERS, pursuant to which Great Plains Energy will issue and sell to OMERS
750,000
shares of preferred stock of Great Plains Energy designated as Series A Preferred Stock, for an aggregate purchase price equal to
$750 million
at the closing of the merger. The stock purchase agreement is subject to various closing conditions.
Each share of Series A Preferred Stock shall automatically convert
three
years after issuance into a number of shares of Great Plains Energy common stock equal to the Conversion Rate.
The Conversion Rate is calculated as follows:
If the average volume-weighted average price per share of Great Plains Energy common stock over 20 consecutive trading days commencing on the 22nd trading day prior to the date of conversion (Applicable Market Value) is:
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(a)
|
Equal to or greater than
$34.38
, the Conversion Rate shall be
29.0855
;
|
|
|
(b)
|
Less than
$34.38
but greater than
$28.65
, the Conversion Rate shall be
$1,000
divided by the Applicable Market Value; or
|
|
|
(c)
|
Less than or equal to
$28.65
, the Conversion Rate shall be
34.9026
.
|
OMERS can voluntarily convert its Series A Preferred Stock into Great Plains Energy common stock at any time at the
29.0855
Conversion Rate, subject to obtaining all necessary governmental approvals.
The Series A Preferred Stock is entitled to a
7.25%
annual dividend, payable in cash, Great Plains Energy common stock or a combination thereof. The Series A Preferred Stock has a liquidation preference of
$1,000
per share.
OMERS will be entitled to name two directors to the Great Plains Energy Board if dividends payable with respect to the Series A Preferred Stock are in arrears for two quarters and one observer on the Great Plains Energy Board if
Great Plains Energy's credit rating is downgraded to below investment grade, so long as OMERS holds 50 percent of its original investment and subject to all necessary governmental approvals being obtained.
Series B Mandatory Convertible Preferred Stock
In October 2016, Great Plains Energy completed a registered public offering of
17.3 million
depositary shares, each representing a 1/20th interest in a share of Great Plains Energy's Series B Preferred Stock, without par value, at a public offering price of
$50
per depositary share for total gross proceeds of
$862.5 million
(net proceeds of approximately
$836.6 million
after underwriting discount). Great Plains Energy plans to use proceeds from the offering to finance a portion of the cash consideration for the anticipated acquisition of Westar.
Each depositary share entitles the holder of such depositary share, through the bank depositary, to a 1/20th interest in the rights and preferences of the Series B Preferred Stock, including conversion, dividend, liquidation and voting rights, subject to the terms of the deposit agreement.
Unless previously converted or redeemed, on or around September 15, 2019, each outstanding share of Series B Preferred Stock will automatically convert into a number of shares of Great Plains Energy common stock equal to the Conversion Rate.
The Conversion Rate is calculated as follows:
If the volume-weighted average price per share, subject to certain anti-dilution adjustments, of Great Plains Energy common stock over 20 consecutive trading days commencing on the 22nd trading day prior to the date of conversion (Applicable Market Value) is:
|
|
(a)
|
Equal to or greater than
$31.74
, the Conversion Rate shall be
31.5060
;
|
|
|
(b)
|
Less than
$31.74
but greater than
$26.45
, the Conversion Rate shall be
$1,000
divided by the Applicable Market Value; or
|
|
|
(c)
|
Less than or equal to
$26.45
, the Conversion Rate shall be
37.8080
.
|
At any time prior to September 15, 2019, a holder may elect to convert shares of the Series B Preferred Stock in whole or in part (but not less than one share of Series B Preferred Stock) into shares of Great Plains Energy common stock at the
31.5060
Conversion Rate.
Dividends on the Series B Preferred Stock will be payable on a cumulative basis when, as and if declared by Great Plains Energy's Board of Directors, and subject to Missouri law, at an annual rate of
7.00%
on the liquidation preference of
$1,000
per share of Series B Preferred Stock (or
$50
per depositary share), payable in cash, Great Plains Energy common stock or a combination thereof.
Holders of the Series B Preferred Stock will be entitled to name two directors to the Great Plains Energy Board if dividends payable with respect to the Series B Preferred Stock are in arrears for six or more quarters, whether or not consecutive.
14
. COMMITMENTS AND CONTINGENCIES
Environmental Matters
Great Plains Energy and KCP&L are subject to extensive federal, state and local environmental laws, regulations and permit requirements relating to air and water quality, waste management and disposal, natural resources and health and safety. In addition to imposing continuing compliance obligations and remediation costs, these laws, regulations and permits authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. The cost of complying with current and future environmental requirements is expected to be material to Great Plains Energy and KCP&L. Failure to comply with environmental requirements or to timely recover environmental costs through rates could have a material effect on Great Plains Energy's and KCP&L's results of operations, financial position and cash flows.
Great Plains Energy's and KCP&L's current estimates of capital expenditures (exclusive of Allowance for Funds Used During Construction (AFUDC) and property taxes) over the next five years to comply with environmental regulations are in the following table. The total cost of compliance with any existing, proposed or future laws and regulations may be significantly different from these cost estimates provided.
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|
|
|
|
|
|
2016
|
2017
|
2018
|
2019
|
2020
|
|
(millions)
|
Great Plains Energy
|
$
|
99.6
|
|
$
|
45.5
|
|
$
|
20.6
|
|
$
|
98.9
|
|
$
|
151.9
|
|
KCP&L
|
83.8
|
|
30.1
|
|
14.4
|
|
87.3
|
|
130.0
|
|
The Companies expect to seek recovery of the costs associated with environmental requirements through rate increases; however, there can be no assurance that such rate increases would be granted. The Companies may be subject to materially adverse rate treatment in response to competitive, economic, political, legislative or regulatory factors and/or public perception of the Companies' environmental reputation.
The following discussion groups environmental and certain associated matters into the broad categories of air and climate change, water, solid waste and remediation.
Clean Air Act and Climate Change Overview
The Clean Air Act Amendments of 1990 (Clean Air Act) and associated regulations enacted by the Environmental Protection Agency (EPA) form a comprehensive program to preserve and enhance air quality. States are required to establish regulations and programs to address all requirements of the Clean Air Act and have the flexibility to enact more stringent requirements. All of Great Plains Energy's and KCP&L's generating facilities, and certain of their other facilities, are subject to the Clean Air Act.
Mercury and Air Toxics Standards (MATS) Rule
In December 2011, the EPA finalized the
MATS Rule that will reduce emissions of toxic air pollutants, also known as hazardous air pollutants, from new and existing coal- and oil-fired electric utility generating units with a capacity of greater than
25
MWs. The rule establishes numerical emission limits for mercury, particulate matter (a surrogate for non-mercury metals) and hydrochloric acid (a surrogate for acid gases). The rule establishes work practices, instead of numerical emission limits, for organic air toxics, including dioxin/furan. KCP&L's and GMO's affected coal-fired units currently comply with the rule.
Industrial Boiler Rule
In December 2012, the EPA issued a final rule that would reduce emissions of hazardous air pollutants from new and existing industrial boilers. The final rule establishes numeric emission limits for mercury, particulate matter (as a surrogate for non-mercury metals), hydrogen chloride (as a surrogate for acid gases) and carbon monoxide (as a surrogate for non-dioxin organic hazardous air pollutants). The final rule establishes emission limits for KCP&L's and GMO's existing units that produce steam other than for the generation of electricity. The final rule does not apply to KCP&L's and GMO's electricity generating boilers, but would apply to most of GMO's Lake Road boilers, which also serve steam customers, and to auxiliary boilers at other generating facilities. KCP&L's and GMO's affected units currently comply with the rule.
Climate Change
The Companies' current generation capacity is primarily coal-fired and is estimated to produce about one ton of carbon dioxide (CO
2
) per MWh, or approximately
21 million
tons and
15 million
tons per year for Great Plains Energy and KCP&L, respectively. The Companies are subject to existing greenhouse gas reporting regulations and certain greenhouse gas requirements. Federal or state legislation concerning the reduction of emissions of greenhouse gases, including CO
2
, could be enacted in the future. At the international level, in December 2015 the Paris Agreement was adopted by nearly 200 countries and will be effective in November 2016 as the threshold of at least 55 countries representing at least 55% of global greenhouse gas emissions have joined it through ratification. The Paris Agreement did not result in any
new, legally binding obligations on the United States to meet a particular greenhouse gas emissions target, but establishes a framework for international cooperation on climate change. Other international agreements legally binding on the United States may be reached in the future. Greenhouse gas legislation has the potential of having significant financial and operational impacts on Great Plains Energy and KCP&L; however, the ultimate financial and operational consequences to Great Plains Energy and KCP&L cannot be determined until such legislation is passed. In the absence of new Congressional mandates, the EPA is proceeding with the regulation of greenhouse gases under the existing Clean Air Act.
In August 2015, the EPA finalized CO
2
emission standards for new, modified and reconstructed affected fossil-fuel-fired electric utility generating units. The standards would not apply to Great Plains Energy's and KCP&L's existing units unless the units were modified or reconstructed in the future.
In August 2015, the EPA finalized its Clean Power Plan which sets CO
2
emission performance rates for existing affected fossil fuel-fired electric generating units. Specifically, the EPA translated those performance rates into a state goal measured in mass and rate based on each state's generation mix. The states have the ability to develop their own plans for affected units to achieve either the performance rates directly or the state goals, with guidelines for the development, submittal and implementation of those plans. Nationwide, by 2030, the EPA projects the Clean Power Plan would achieve CO
2
emission reductions from the power sector of approximately
32%
from CO
2
emission levels in 2005.
The EPA has finalized an interim CO
2
goal rate reduction in Kansas and Missouri (average of 2022-2029) of
34%
and
26%
, respectively, and 2030 targets in Kansas and Missouri of
44%
and
37%
, respectively. The baseline for these reductions is 2012 CO
2
emissions adjusted by the EPA. The EPA has also finalized mass based CO
2
reduction goals.
States are required to submit plans to implement the Clean Power Plan. An EPA plan with either a rate-based or mass-based trading program has yet to be finalized and can be enforced in states that fail to submit approved plans.
In February 2016, the U.S. Supreme Court granted a stay of the Clean Power Plan putting the rule on hold pending review in the United States Court of Appeals for the District of Columbia Circuit and any subsequent review by the U.S. Supreme Court if such review is sought. Compliance with the Clean Power Plan has the potential of having significant financial and operational impacts on Great Plains Energy and KCP&L; however, the ultimate financial and operational consequences to Great Plains Energy and KCP&L cannot be determined until the outcome of pending litigation is known and/or the state plans to implement the Clean Power Plan are known.
The Companies are subject to existing renewable energy standards in Missouri. Management believes that national renewable energy standards are also possible. The timing, provisions and impact of such possible future requirements, including the cost to obtain and install new equipment to achieve compliance, cannot be reasonably estimated at this time.
Clean Water Act
The Clean Water Act and associated regulations enacted by the EPA form a comprehensive program to restore and preserve water quality. Like the Clean Air Act, states are required to establish regulations and programs to address all requirements of the Clean Water Act, and have the flexibility to enact more stringent requirements. All of Great Plains Energy's and KCP&L's generating facilities, and certain of their other facilities, are subject to the Clean Water Act.
In May 2014, the EPA finalized regulations pursuant to Section 316(b) of the Clean Water Act regarding cooling water intake structures pursuant to a court approved settlement. KCP&L generation facilities with cooling water intake structures are subject to the best technology available standards based on studies completed to comply with such standards. The rule provides flexibility to work with the states to develop the best technology available to minimize aquatic species impacted by being pinned against intake screens (impingement) or drawn into cooling
water systems (entrainment). Estimated costs to comply with Section 316(b) of the Clean Water Act are included in the estimated capital expenditures table above.
KCP&L holds a permit from the Missouri Department of Natural Resources (MDNR) covering water discharge from its Hawthorn Station. The permit authorizes KCP&L to, among other things, withdraw water from the Missouri River for cooling purposes and return the heated water to the Missouri River. KCP&L has applied for a renewal of this permit and the EPA has submitted an interim objection letter regarding the allowable amount of heat that can be contained in the returned water. Until this matter is resolved, KCP&L continues to operate under its current permit. Future water permit renewals at KCP&L's Iatan Station and at GMO's Sibley and Lake Road Stations could also be impacted by the allowable amount of heat that can be contained in the returned water. Great Plains Energy and KCP&L cannot predict the outcome of these matters; however, while less significant outcomes are possible, these matters may require a reduction in generation, installation of cooling towers or other technology to cool the water, or both, any of which could have a significant impact on Great Plains Energy's and KCP&L's results of operations, financial position and cash flows.
In September 2015, the EPA finalized a revision of the technology-based effluent limitations guidelines and standards regulation to make the existing controls on discharges from steam electric power plants more stringent. The final rule sets the first federal limits on the levels of toxic metals in wastewater that can be discharged from power plants. The new requirements for existing power plants would be phased in between 2018 and 2023. The final rule establishes new or additional requirements for wastewaters associated with the following processes and byproducts at certain KCP&L and GMO stations: flue gas desulfurization, fly ash, bottom ash, flue gas mercury control, and combustion residual leachate from landfills and surface impoundments. Estimated capital costs to comply with the final rule are included in the estimated capital expenditures table above.
Solid Waste
Solid and hazardous waste generation, storage, transportation, treatment and disposal are regulated at the federal and state levels under various laws and regulations. In December 2014, the EPA finalized regulations to regulate coal combustion residuals (CCRs) under the Resource Conservation and Recovery Act (RCRA) subtitle D to address the risks from the disposal of CCRs generated from the combustion of coal at electric generating facilities. The Companies use coal in generating electricity and dispose of the CCRs in both on-site facilities and facilities owned by third parties. KCP&L's Iatan, La Cygne, and Montrose Stations and GMO's Sibley Station have on-site facilities affected by the rule. The rule requires periodic assessments; groundwater monitoring; location restrictions; design and operating requirements; recordkeeping and notifications; and closure, among other requirements, for CCR units. The rule was promulgated in the Federal Register on April 17, 2015, and became effective six months after promulgation with various obligations effective at specified times within the rule. Estimated capital costs to comply with the CCR rule are included in the estimated capital expenditures table above. Certain requirements of the rule would require Great Plains Energy or KCP&L to expedite or incur additional capital expenditures in the future.
Great Plains Energy and KCP&L have Asset Retirement Obligations (AROs) on their balance sheets for closure and post-closure of ponds and landfills containing CCRs. Certain requirements of the rule could in the future require further evaluation of the expected method of compliance and refinement of assumptions underlying the cost estimates for closure and post-closure. Great Plains Energy's and KCP&L's AROs could increase from the amounts presently recorded.
Remediation
Certain federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), hold current and previous owners or operators of contaminated facilities and persons who arranged for the disposal or treatment of hazardous substances liable for the cost of investigation and cleanup. CERCLA and other laws also authorize the EPA and other agencies to issue orders compelling potentially responsible parties to clean up sites that are determined to present an actual or potential threat to human health or the environment. GMO retains some environmental liability for several operations and investments it no longer owns. In addition, GMO also owns, or has acquired liabilities from companies that once owned or operated, former manufactured gas plant (MGP) sites, which are subject to the supervision of the EPA and various state environmental agencies.
At
September 30, 2016
, and December 31,
2015
, KCP&L had
$0.3 million
accrued for environmental remediation expenses, which covers ground water monitoring at a former MGP site. The amount accrued was established on an undiscounted basis and KCP&L does not currently have an estimated time frame over which the accrued amount may be paid.
In addition to the
$0.3 million
accrual above, at
September 30, 2016
, and December 31,
2015
, Great Plains Energy had
$1.4 million
accrued for the future investigation and remediation of certain additional GMO identified MGP sites and retained liabilities. This estimate was based upon review of the potential costs associated with conducting investigative and remedial actions at identified sites, as well as the likelihood of whether such actions will be necessary. This estimate could change materially after further investigation, and could also be affected by the actions of environmental agencies and the financial viability of other potentially responsible parties; however, given the uncertainty of these items the possible loss or range of loss in excess of the amount accrued is not estimable.
GMO has pursued recovery of remediation costs from insurance carriers and other potentially responsible parties. As a result of a settlement with an insurance carrier, approximately
$1.5 million
in insurance proceeds less an annual deductible is available to GMO to recover qualified MGP remediation expenses. GMO would seek recovery of additional remediation costs and expenses through rate increases; however, there can be no assurance that such rate increases would be granted.
15. LEGAL PROCEEDINGS
GMO Western Energy Crisis
In response to complaints of excessive prices in the California energy markets, FERC issued an order in July 2001 requiring net sellers of power in the California markets from October 2, 2000, through June 20, 2001, at prices above a FERC-determined competitive market clearing price, to make refunds to net purchasers of power in the California market during that time period. Because MPS Merchant was a net purchaser of power during the refund period, it has received approximately
$8 million
in refunds through settlements with certain sellers of power. MPS Merchant estimates that it is entitled to approximately
$12 million
in additional refunds under the standards FERC has used in this case once a comprehensive resettlement of those markets occurs, as required by FERC. FERC has stated that interest will be applied to the refunds but the amount of interest has not yet been determined.
In December 2001, various parties appealed FERC orders to the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) seeking review of a number of issues, including expansion of the refund period to include periods prior to October 2, 2000 (the Summer Period). MPS Merchant was a net seller of power during the Summer Period. On August 2, 2006, the Ninth Circuit issued an order finding, among other things, that FERC erred in failing to consider certain legal issues regarding whether it has authority to order refunds for violation of FERC-approved tariffs during the Summer Period. The court remanded the matter to FERC for further consideration.
In November 2014, FERC issued an order finding that MPS Merchant engaged in tariff violations during the Summer Period and ordering refunds in the form of disgorgement of certain revenues. MPS Merchant (and other parties) filed a request for rehearing challenging FERC's findings of tariff violations and the remedy imposed in the November 2014 order. Additionally, several parties representing California utilities and governmental agencies filed a request for clarification or rehearing focusing on the remedy.
In November 2015, FERC issued an order on rehearing, confirming its findings of violation and expanding the remedy from its November 2014 order to cover additional MPS Merchant sales in the California markets. MPS Merchant filed another request for rehearing, challenging the expanded remedy, and also filed a petition for review of the November 2014 and November 2015 orders with the Ninth Circuit.
In February 2016, FERC issued another order on rehearing/clarification that requires MPS Merchant to refund, in the form of disgorgement, all revenues in excess of the FERC-determined competitive market clearing price for all sales in the California markets during the Summer Period that occurred in any hour in which any remaining respondent in the proceeding was found to have committed a tariff violation. That order is subject to further
rehearing and judicial review. Under FERC's orders, MPS Merchant may be able to offset its costs of selling power against any remedy ultimately imposed to ensure that it does not under-recover its actual costs.
In September 2016, the Ninth Circuit denied MPS Merchant's petition for review regarding liability for tariff violations, but declined to address the issue of remedy as the FERC remedial order is not final.
In October 2016, MPS Merchant reached a settlement agreement with certain California utilities and governmental agencies that would settle all issues in the case in exchange for cash and other consideration. The agreement is subject to approval by FERC. As a result of this agreement, Great Plains Energy has accrued an insignificant amount of loss in its consolidated financial statements as of September 30, 2016.
16
. RELATED PARTY TRANSACTIONS AND RELATIONSHIPS
KCP&L employees manage GMO's business and operate its facilities at cost, including GMO's
18%
ownership interest in KCP&L's Iatan Nos. 1 and 2. The operating expenses and capital costs billed from KCP&L to GMO were
$48.9 million
and
$143.8 million
, respectively, for the three months ended and year to date September 30, 2016. These cost totaled
$45.5 million
and
$137.7 million
, respectively, for the three months ended and year to date September 30, 2015.
KCP&L and GMO are also authorized to participate in the Great Plains Energy money pool, an internal financing arrangement in which funds may be lent on a short-term basis to KCP&L and GMO from Great Plains Energy and between KCP&L and GMO. At September 30, 2016, KCP&L had a money pool receivable from GMO of
$11.1 million
. At December 31, 2015, KCP&L had
no
outstanding receivables or payables under the money pool.
The following table summarizes KCP&L's related party net receivables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
December 31
|
|
|
2016
|
|
|
2015
|
|
|
|
(millions)
|
|
Net receivable from GMO
|
|
$
|
71.5
|
|
|
|
$
|
50.0
|
|
|
Net receivable from Great Plains Energy
|
|
19.5
|
|
|
|
15.8
|
|
|
17
. DERIVATIVE INSTRUMENTS
Great Plains Energy and KCP&L are exposed to a variety of market risks including interest rates and commodity prices. Management has established risk management policies and strategies to reduce the potentially adverse effects that the volatility of the markets may have on Great Plains Energy's and KCP&L's operating results. Great Plains Energy's and KCP&L's interest rate risk management activities have included using derivative instruments to hedge against future interest rate fluctuations on anticipated debt issuances. Commodity risk management activities, including the use of certain derivative instruments, are subject to the management, direction and control of an internal commodity risk committee. Management maintains commodity price risk management strategies that use derivative instruments to reduce the effects of fluctuations in wholesale sales, fuel and purchased power expense caused by commodity price volatility.
Counterparties to commodity derivatives expose Great Plains Energy and KCP&L to credit loss in the event of nonperformance. This credit loss is limited to the cost of replacing these contracts at current market rates. Derivative instruments, excluding those instruments that qualify for the normal purchases and normal sales (NPNS) election, which are accounted for by accrual accounting, are recorded on the balance sheet at fair value as an asset or liability. Changes in the fair value of derivative instruments are recognized in net income, except hedges for KCP&L's and GMO's utility operations that are recorded to a regulatory asset or liability consistent with KCC and MPSC regulatory orders.
Great Plains Energy and KCP&L have posted collateral, in the ordinary course of business, for the aggregate fair value of all derivative instruments with credit risk-related contingent features that are in a liability position. At
September 30, 2016
, Great Plains Energy and KCP&L have posted collateral in excess of the aggregate fair value of their derivative instruments; therefore, if the credit risk-related contingent features underlying these agreements were triggered, Great Plains Energy and KCP&L would not be required to post additional collateral to their counterparties. For derivative contracts with counterparties under master netting arrangements, Great Plains Energy and KCP&L can net receivables and payables with each respective counterparty.
Interest Rate Risk Management
In June 2016, Great Plains Energy entered into four interest rate swaps, with a total notional amount of
$4.4 billion
, to hedge against interest rate fluctuations on future issuances of long-term debt expected to be issued to finance a portion of the cash consideration for the anticipated acquisition of Westar. Settlement of the interest rate swaps is contingent on the consummation of the anticipated acquisition of Westar. The interest rate swaps have been designated as economic hedges (non-hedging derivatives). The fair values of these instruments are recorded as derivative assets or liabilities with an offsetting entry recorded to interest charges.
Commodity Risk Management
KCP&L's risk management policy uses derivative instruments to mitigate exposure to commodity market price fluctuations. At September 30, 2016, KCP&L had financial contracts in place to hedge approximately
20%
and
7%
of the expected summer month natural gas generation for Missouri jurisdictional retail sales for 2017 and 2018, respectively. KCP&L has designated these financial contracts as economic hedges (non-hedging derivatives). The fair values of these instruments are recorded as derivative assets or liabilities with an offsetting entry recorded to a regulatory asset or liability. The settlement costs are included in a recovery mechanism. A regulatory asset or liability is recorded
to reflect the change in the timing of recognition authorized by the MPSC. Recovery of actual costs will not impact earnings, but will impact cash flows due to the timing of the recovery mechanism.
KCP&L and GMO have Transmission Congestion Rights (TCRs) that they utilize to hedge against congestion costs and protect load prices in the Southwest Power Pool, Inc. (SPP) Integrated Marketplace. These financial contracts have been designated as economic hedges (non-hedging derivatives). The fair values of these instruments are recorded as derivative assets or liabilities with an offsetting entry recorded to a regulatory asset or liability. The settlement costs are included in a recovery mechanism. A regulatory asset or liability is recorded
to reflect the change in the timing of recognition authorized by KCC and MPSC. Recovery of actual costs will not impact earnings, but will impact cash flows due to the timing of the recovery mechanism.
GMO's risk management policy uses derivative instruments to mitigate price exposure to natural gas price volatility in the market. At
September 30, 2016
, GMO had financial contracts in place to hedge approximately
66%
,
37%
and
12%
of the expected on-peak natural gas generation and natural gas equivalent purchased power price exposure for the remainder of
2016
,
2017
and
2018
, respectively. The fair value of the portfolio will settle against actual purchases of natural gas and purchased power. GMO has designated its natural gas hedges as economic hedges (non-hedging derivatives). In connection with GMO's 2005 Missouri electric rate case, it was agreed that the settlement costs of these contracts would be recognized in fuel expense. The settlement cost is included in a recovery mechanism. A regulatory asset or liability is recorded
to reflect the change in the timing of recognition authorized by the MPSC. Recovery of actual costs will not impact earnings, but will impact cash flows due to the timing of the recovery mechanism.
MPS Merchant, which has certain long-term natural gas contracts remaining from its former non-regulated trading operations, manages the daily delivery of its remaining contractual commitments with economic hedges (non-hedging derivatives) to reduce its exposure to changes in market prices. Within the trading portfolio, MPS Merchant takes certain positions to hedge physical sale or purchase contracts. MPS Merchant records the fair value of physical trading energy contracts as derivative assets or liabilities with an offsetting entry to the consolidated statements of comprehensive income.
The gross notional contract amount and recorded fair values of open positions for derivative instruments are summarized in the following table. The fair values of these derivatives are recorded on the consolidated balance sheets. The fair values below are gross values before netting agreements and netting of cash collateral.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
December 31
|
|
2016
|
|
2015
|
|
Notional
Contract
Amount
|
|
Fair
Value
|
|
Notional
Contract
Amount
|
|
Fair
Value
|
Great Plains Energy
|
(millions)
|
Non-hedging derivatives
|
|
|
|
|
|
|
|
Futures contracts
|
$
|
14.9
|
|
|
$
|
—
|
|
|
$
|
26.6
|
|
|
$
|
(5.7
|
)
|
Forward contracts
|
11.1
|
|
|
2.6
|
|
|
15.6
|
|
|
3.1
|
|
Transmission congestion rights
|
5.1
|
|
|
0.7
|
|
|
5.6
|
|
|
(0.5
|
)
|
Interest rate swaps
|
4,415.0
|
|
|
(78.8
|
)
|
|
—
|
|
|
—
|
|
KCP&L
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
|
$
|
(0.1
|
)
|
Transmission congestion rights
|
3.9
|
|
|
0.4
|
|
|
4.1
|
|
|
(0.4
|
)
|
The fair values of Great Plains Energy's and KCP&L's open derivative positions and balance sheet classification are summarized in the following tables. The fair values below are gross values before netting agreements and netting of cash collateral.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Plains Energy
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
Asset Derivatives
|
|
Liability Derivatives
|
September 30, 2016
|
Classification
|
|
Fair Value
|
|
Fair Value
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
(millions)
|
|
Commodity contracts
|
Other
|
|
|
$
|
5.3
|
|
|
|
|
$
|
2.0
|
|
|
Interest rate contracts
|
Derivative instruments
|
|
|
—
|
|
|
|
|
78.8
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
Other/Derivative instruments
|
|
|
$
|
3.3
|
|
|
|
|
$
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KCP&L
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
Asset Derivatives
|
|
Liability Derivatives
|
September 30, 2016
|
Classification
|
|
Fair Value
|
|
Fair Value
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
(millions)
|
|
Commodity contracts
|
Other
|
|
|
$
|
1.1
|
|
|
|
|
$
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
Other
|
|
|
$
|
0.2
|
|
|
|
|
$
|
0.7
|
|
|
The following tables provide information regarding Great Plains Energy's and KCP&L's offsetting of derivative assets and liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Plains Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Statement of Financial Position
|
|
|
|
|
Description
|
Gross Amounts Recognized
|
|
Gross Amounts Offset in the Statement of Financial Position
|
|
Net Amounts Presented in the Statement of Financial Position
|
|
Financial Instruments
|
|
Cash Collateral
|
|
Net Amount
|
September 30, 2016
|
(millions)
|
Derivative assets
|
|
$
|
5.3
|
|
|
|
|
$
|
(2.0
|
)
|
|
|
|
$
|
3.3
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
3.3
|
|
|
Derivative liabilities
|
|
80.8
|
|
|
|
|
(2.0
|
)
|
|
|
|
78.8
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
78.8
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
3.3
|
|
|
|
|
$
|
(0.2
|
)
|
|
|
|
$
|
3.1
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
3.1
|
|
|
Derivative liabilities
|
|
6.4
|
|
|
|
|
(5.9
|
)
|
|
|
|
0.5
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KCP&L
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Statement of Financial Position
|
|
|
|
|
Description
|
Gross Amounts Recognized
|
|
Gross Amounts Offset in the Statement of Financial Position
|
|
Net Amounts Presented in the Statement of Financial Position
|
|
Financial Instruments
|
|
Cash Collateral
|
|
Net Amount
|
September 30, 2016
|
(millions)
|
Derivative assets
|
|
$
|
1.1
|
|
|
|
|
$
|
(0.7
|
)
|
|
|
|
$
|
0.4
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
0.4
|
|
|
Derivative liabilities
|
|
0.7
|
|
|
|
|
(0.7
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
0.2
|
|
|
|
|
$
|
(0.2
|
)
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
Derivative liabilities
|
|
0.7
|
|
|
|
|
(0.3
|
)
|
|
|
|
0.4
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
0.4
|
|
|
At
September 30, 2016
, and December 31,
2015
, Great Plains Energy offset
$0.1 million
and
$5.7 million
, respectively, of cash collateral posted with counterparties against net derivative positions.
See Note
19
for information regarding amounts reclassified out of accumulated other comprehensive loss for Great Plains Energy and KCP&L.
Great Plains Energy's accumulated OCI at
September 30, 2016
, includes
$8.9 million
that is expected to be reclassified to expenses over the next twelve months. KCP&L's accumulated OCI at
September 30, 2016
, includes
$8.5 million
that is expected to be reclassified to expenses over the next twelve months.
The following tables summarize the amounts of gain (loss) recognized for the change in fair value of derivatives not designated as hedging instruments for Great Plains Energy and KCP&L.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Plains Energy
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Year to Date
September 30
|
Derivatives Not Designated as Hedging Instruments
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Location of Gain (Loss)
|
|
(millions)
|
Electric revenues
|
|
$
|
2.0
|
|
|
$
|
(0.2
|
)
|
|
$
|
1.7
|
|
|
$
|
(7.9
|
)
|
Fuel
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(4.6
|
)
|
|
(1.2
|
)
|
Purchased power
|
|
0.5
|
|
|
(0.2
|
)
|
|
0.2
|
|
|
(1.4
|
)
|
Interest charges
|
|
(1.8
|
)
|
|
—
|
|
|
(78.8
|
)
|
|
—
|
|
Regulatory asset
|
|
—
|
|
|
(1.9
|
)
|
|
(0.1
|
)
|
|
(5.1
|
)
|
Regulatory liability
|
|
(0.3
|
)
|
|
—
|
|
|
0.9
|
|
|
—
|
|
Total
|
|
$
|
0.3
|
|
|
$
|
(2.4
|
)
|
|
$
|
(80.7
|
)
|
|
$
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KCP&L
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Year to Date
September 30
|
Derivatives Not Designated as Hedging Instruments
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Location of Gain (Loss)
|
|
(millions)
|
Electric revenues
|
|
$
|
2.0
|
|
|
$
|
(0.2
|
)
|
|
$
|
1.7
|
|
|
$
|
(7.9
|
)
|
Fuel
|
|
0.3
|
|
|
1.1
|
|
|
0.2
|
|
|
1.3
|
|
Regulatory asset
|
|
0.1
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Regulatory liability
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
Total
|
|
$
|
2.4
|
|
|
$
|
0.8
|
|
|
$
|
2.4
|
|
|
$
|
(6.7
|
)
|
18. FAIR VALUE MEASUREMENTS
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad categories, giving the highest priority to quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. A definition of the various levels, as well as discussion of the various measurements within the levels, is as follows:
Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets that Great Plains Energy and KCP&L have access to at the measurement date.
Level 2 – Market-based inputs for assets or liabilities that are observable (either directly or indirectly) or inputs that are not observable but are corroborated by market data.
Level 3 – Unobservable inputs, reflecting Great Plains Energy's and KCP&L's own assumptions about the assumptions market participants would use in pricing the asset or liability.
Great Plains Energy and KCP&L record cash and cash equivalents and short-term borrowings on the balance sheet at cost, which approximates fair value due to the short-term nature of these instruments.
Great Plains Energy and KCP&L record long-term debt on the balance sheet at amortized cost. The fair value of long-term debt is measured as a Level 2 liability and is based on quoted market prices, with the incremental borrowing rate for similar debt used to determine fair value if quoted market prices are not available. At
September 30, 2016
, the book value and fair value of Great Plains Energy's long-term debt, including current
maturities, were
$3.8 billion
and
$4.1 billion
, respectively. At
December 31, 2015
, the book value and fair value of Great Plains Energy's long-term debt, including current maturities, were
$3.7 billion
and
$4.0 billion
, respectively. At
September 30, 2016
, and December 31, 2015, the book value and fair value of KCP&L's long-term debt, including current maturities, were
$2.6 billion
and
$2.8 billion
, respectively.
The following tables include Great Plains Energy's and KCP&L's balances of financial assets and liabilities measured at fair value on a recurring basis. The fair values below are gross values before netting arrangements and netting of cash collateral.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
September 30
2016
|
|
|
Level 1
|
|
|
Level 2
|
|
Level 3
|
KCP&L
|
|
(millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trust
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
147.4
|
|
|
|
|
$
|
147.4
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
29.7
|
|
|
|
|
29.7
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
U.S. Agency
|
|
1.8
|
|
|
|
|
—
|
|
|
|
|
1.8
|
|
|
|
|
—
|
|
|
State and local obligations
|
|
3.1
|
|
|
|
|
—
|
|
|
|
|
3.1
|
|
|
|
|
—
|
|
|
Corporate bonds
|
|
34.4
|
|
|
|
|
—
|
|
|
|
|
34.4
|
|
|
|
|
—
|
|
|
Foreign governments
|
|
0.3
|
|
|
|
|
—
|
|
|
|
|
0.3
|
|
|
|
|
—
|
|
|
Cash equivalents
|
|
1.6
|
|
|
|
|
1.6
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Total nuclear decommissioning trust
|
|
218.3
|
|
|
|
|
178.7
|
|
|
|
|
39.6
|
|
|
|
|
—
|
|
|
Self-insured health plan trust
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
0.9
|
|
|
|
|
0.9
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Debt securities
|
|
4.8
|
|
|
|
|
—
|
|
|
|
|
4.8
|
|
|
|
|
—
|
|
|
Cash and cash equivalents
|
|
8.0
|
|
|
|
|
8.0
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Total self-insured health plan trust
|
|
13.7
|
|
|
|
|
8.9
|
|
|
|
|
4.8
|
|
|
|
|
—
|
|
|
Derivative instruments - commodity
(c)
|
|
1.1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1.1
|
|
|
Total
|
|
$
|
233.1
|
|
|
|
|
$
|
187.6
|
|
|
|
|
$
|
44.4
|
|
|
|
|
$
|
1.1
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments - commodity
(c)
|
|
0.7
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
0.7
|
|
|
Total
|
|
$
|
0.7
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
0.7
|
|
|
Other Great Plains Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments - commodity
(c)
|
|
$
|
4.2
|
|
|
|
|
$
|
1.1
|
|
|
|
|
$
|
2.3
|
|
|
|
|
$
|
0.8
|
|
|
SERP rabbi trusts
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
0.1
|
|
|
|
|
0.1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Total
|
|
$
|
4.3
|
|
|
|
|
$
|
1.2
|
|
|
|
|
$
|
2.3
|
|
|
|
|
$
|
0.8
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
(c)
|
|
$
|
1.3
|
|
|
|
|
$
|
1.1
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
0.2
|
|
|
Interest rates
(e)
|
|
78.8
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
78.8
|
|
|
Total derivative instruments
|
|
80.1
|
|
|
|
|
1.1
|
|
|
|
|
—
|
|
|
|
|
79.0
|
|
|
Total
|
|
$
|
80.1
|
|
|
|
|
$
|
1.1
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
79.0
|
|
|
Great Plains Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trust
(a)
|
|
$
|
218.3
|
|
|
|
|
$
|
178.7
|
|
|
|
|
$
|
39.6
|
|
|
|
|
$
|
—
|
|
|
Self-insured health plan trust
(b)
|
|
13.7
|
|
|
|
|
8.9
|
|
|
|
|
4.8
|
|
|
|
|
—
|
|
|
Derivative instruments
(c)
|
|
5.3
|
|
|
|
|
1.1
|
|
|
|
|
2.3
|
|
|
|
|
1.9
|
|
|
SERP rabbi trusts
(d)
|
|
0.1
|
|
|
|
|
0.1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Total
|
|
$
|
237.4
|
|
|
|
|
$
|
188.8
|
|
|
|
|
$
|
46.7
|
|
|
|
|
$
|
1.9
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
(c) (e)
|
|
80.8
|
|
|
|
|
1.1
|
|
|
|
|
—
|
|
|
|
|
79.7
|
|
|
Total
|
|
$
|
80.8
|
|
|
|
|
$
|
1.1
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
79.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
December 31
2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
KCP&L
|
|
(millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trust
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
135.4
|
|
|
|
|
$
|
135.4
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
26.4
|
|
|
|
|
26.4
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
U.S. Agency
|
|
1.8
|
|
|
|
|
—
|
|
|
|
|
1.8
|
|
|
|
|
—
|
|
|
State and local obligations
|
|
4.0
|
|
|
|
|
—
|
|
|
|
|
4.0
|
|
|
|
|
—
|
|
|
Corporate bonds
|
|
29.2
|
|
|
|
|
—
|
|
|
|
|
29.2
|
|
|
|
|
—
|
|
|
Foreign governments
|
|
0.3
|
|
|
|
|
—
|
|
|
|
|
0.3
|
|
|
|
|
—
|
|
|
Cash equivalents
|
|
3.6
|
|
|
|
|
3.6
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Total nuclear decommissioning trust
|
|
200.7
|
|
|
|
|
165.4
|
|
|
|
|
35.3
|
|
|
|
|
—
|
|
|
Self-insured health plan trust
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
1.1
|
|
|
|
|
1.1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Debt securities
|
|
7.3
|
|
|
|
|
—
|
|
|
|
|
7.3
|
|
|
|
|
—
|
|
|
Cash and cash equivalents
|
|
5.2
|
|
|
|
|
5.2
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Total self-insured health plan trust
|
|
13.6
|
|
|
|
|
6.3
|
|
|
|
|
7.3
|
|
|
|
|
—
|
|
|
Derivative instruments - commodity
(c)
|
|
0.2
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
0.2
|
|
|
Total
|
|
$
|
214.5
|
|
|
|
|
$
|
171.7
|
|
|
|
|
$
|
42.6
|
|
|
|
|
$
|
0.2
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments - commodity
(c)
|
|
0.7
|
|
|
|
|
0.1
|
|
|
|
|
—
|
|
|
|
|
0.6
|
|
|
Total
|
|
$
|
0.7
|
|
|
|
|
$
|
0.1
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
0.6
|
|
|
Other Great Plains Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments - commodity
(c)
|
|
$
|
3.1
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
2.7
|
|
|
|
|
$
|
0.4
|
|
|
SERP rabbi trusts
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
0.1
|
|
|
|
|
0.1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Total
|
|
$
|
3.2
|
|
|
|
|
$
|
0.1
|
|
|
|
|
$
|
2.7
|
|
|
|
|
$
|
0.4
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments - commodity
(c)
|
|
5.7
|
|
|
|
|
5.6
|
|
|
|
|
—
|
|
|
|
|
0.1
|
|
|
Total
|
|
$
|
5.7
|
|
|
|
|
$
|
5.6
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
0.1
|
|
|
Great Plains Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear decommissioning trust
(a)
|
|
$
|
200.7
|
|
|
|
|
$
|
165.4
|
|
|
|
|
$
|
35.3
|
|
|
|
|
$
|
—
|
|
|
Self-insured health plan trust
(b)
|
|
13.6
|
|
|
|
|
6.3
|
|
|
|
|
7.3
|
|
|
|
|
—
|
|
|
Derivative instruments
(c)
|
|
3.3
|
|
|
|
|
—
|
|
|
|
|
2.7
|
|
|
|
|
0.6
|
|
|
SERP rabbi trusts
(d)
|
|
0.1
|
|
|
|
|
0.1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Total
|
|
$
|
217.7
|
|
|
|
|
$
|
171.8
|
|
|
|
|
$
|
45.3
|
|
|
|
|
$
|
0.6
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
(c)
|
|
6.4
|
|
|
|
|
5.7
|
|
|
|
|
—
|
|
|
|
|
0.7
|
|
|
Total
|
|
$
|
6.4
|
|
|
|
|
$
|
5.7
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
0.7
|
|
|
|
|
(a)
|
Fair value is based on quoted market prices of the investments held by the fund and/or valuation models.
|
|
|
(b)
|
Fair value is based on quoted market prices of the investments held by the trust. Debt securities classified as Level 2 are comprised of corporate bonds, U.S. Agency, state and local obligations, and other asset-backed securities.
|
|
|
(c)
|
The fair value of commodity derivative instruments is estimated using market quotes, over-the-counter forward price and volatility curves and correlations among fuel prices, net of estimated credit risk. Derivative instruments classified as Level 1 represent exchange traded derivative instruments. Derivative instruments classified as Level 2 represent non-exchange traded derivative instruments valued using pricing models for which observable market data is available to corroborate the valuation inputs. Derivative instruments classified as Level 3 represent non-exchange traded derivative instruments valued using pricing models for which observable market data is not available to corroborate the valuation inputs and TCRs valued at the most recent auction price in the SPP Integrated Marketplace.
|
|
|
(d)
|
At September 30, 2016, and December 31, 2015, the Supplemental Executive Retirement Plan (SERP) rabbi trusts also included
$16.7 million
and
$16.6 million
, respectively, of fixed income funds valued at net asset value (NAV) per share (or its equivalent) that are not categorized in the fair value hierarchy. The fixed income fund invests primarily in intermediate and long-term debt securities, can be redeemed immediately and is not subject to any restrictions on redemptions.
|
|
|
(e)
|
The fair value of the interest rate derivative instruments is determined by calculating the net present value of expected payments and receipts under the interest rate swaps using observable market inputs including interest rates and LIBOR swap rates. As of September 30, 2016, the calculated net present value was discounted by a contingency factor of
0.35
that management believes is representative of
|
what a market participant would use in valuing these instruments in order to account for the contingent nature of the settlement of these instruments. See Note 17 for more details on the interest rate swaps.
A decrease in the contingency factor would result in a higher fair value measurement. Management expects that the contingency factor will decrease as the Company obtains certain regulatory approvals connected with the anticipated acquisition of Westar and due to the passage of time. Because of the unobservable nature of the contingency factor, the interest rate derivatives have been classified as Level 3.
The following tables reconcile the beginning and ending balances for all Level 3 assets and liabilities measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
Great Plains Energy
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Derivative Instruments
|
|
2016
|
|
2015
|
|
(millions)
|
Net asset (liability) at July 1
|
$
|
(76.1
|
)
|
|
$
|
0.8
|
|
Total realized/unrealized gains (losses):
|
|
|
|
included in electric revenue
|
2.0
|
|
|
(0.2
|
)
|
included in purchased power expense
|
0.5
|
|
|
(0.2
|
)
|
included in non-operating income
|
3.8
|
|
|
3.2
|
|
included in interest charges
|
(1.8
|
)
|
|
—
|
|
included in regulatory (asset) liability
|
0.2
|
|
|
(0.1
|
)
|
Purchases
|
—
|
|
|
(0.2
|
)
|
Settlements
|
(6.4
|
)
|
|
(2.9
|
)
|
Net asset (liability) at September 30
|
$
|
(77.8
|
)
|
|
$
|
0.4
|
|
Total unrealized gains (losses) relating to assets and liabilities still on the consolidated balance
sheet at September 30:
|
|
|
|
|
included in electric revenue
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
included in interest charges
|
(1.8
|
)
|
|
—
|
|
included in regulatory (asset) liability
|
0.8
|
|
|
(0.1
|
)
|
|
|
|
|
Great Plains Energy
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Derivative Instruments
|
|
2016
|
|
2015
|
|
(millions)
|
Net asset (liability) at January 1
|
$
|
(0.1
|
)
|
|
$
|
3.5
|
|
Total realized/unrealized gains (losses):
|
|
|
|
|
|
included in electric revenue
|
1.7
|
|
|
(7.9
|
)
|
included in purchased power expense
|
0.2
|
|
|
(1.4
|
)
|
included in non-operating income
|
7.9
|
|
|
6.9
|
|
included in interest charges
|
(78.8
|
)
|
|
—
|
|
included in regulatory (asset) liability
|
0.8
|
|
|
(0.1
|
)
|
Purchases
|
(0.5
|
)
|
|
0.4
|
|
Settlements
|
(9.0
|
)
|
|
(1.0
|
)
|
Net asset (liability) at September 30
|
$
|
(77.8
|
)
|
|
$
|
0.4
|
|
Total unrealized gains (losses) relating to assets and liabilities still on the consolidated balance sheet at September 30:
|
|
|
|
|
included in electric revenue
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
included in non-operating income
|
0.1
|
|
|
(0.1
|
)
|
included in interest charges
|
(78.8
|
)
|
|
—
|
|
included in regulatory (asset) liability
|
0.8
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
KCP&L
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Derivative Instruments
|
|
2016
|
|
2015
|
|
(millions)
|
Net asset at July 1
|
$
|
0.5
|
|
|
$
|
0.1
|
|
Total realized/unrealized gains (losses):
|
|
|
|
|
|
included in electric revenue
|
2.0
|
|
|
(0.2
|
)
|
included in regulatory asset
|
—
|
|
|
(0.1
|
)
|
Purchases
|
(0.1
|
)
|
|
(0.2
|
)
|
Settlements
|
(2.0
|
)
|
|
0.2
|
|
Net asset (liability) at September 30
|
$
|
0.4
|
|
|
$
|
(0.2
|
)
|
Total unrealized gains (losses) relating to assets and liabilities still on the consolidated balance
sheet at September 30:
|
|
|
|
|
included in electric revenue
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
included in regulatory (asset) liability
|
0.5
|
|
|
(0.1
|
)
|
|
|
|
|
KCP&L
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Derivative Instruments
|
|
2016
|
|
2015
|
|
(millions)
|
Net asset (liability) at January 1
|
$
|
(0.4
|
)
|
|
$
|
3.1
|
|
Total realized/unrealized gains (losses):
|
|
|
|
|
|
included in electric revenue
|
1.7
|
|
|
(7.9
|
)
|
included in regulatory (asset) liability
|
0.5
|
|
|
(0.1
|
)
|
Purchases
|
(0.5
|
)
|
|
(0.4
|
)
|
Settlements
|
(0.9
|
)
|
|
5.1
|
|
Net asset (liability) at September 30
|
$
|
0.4
|
|
|
$
|
(0.2
|
)
|
Total unrealized gains (losses) relating to assets and liabilities still on the consolidated balance sheet at September 30:
|
|
|
|
|
included in electric revenue
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
included in regulatory (asset) liability
|
0.5
|
|
|
(0.1
|
)
|
19
. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables reflect the change in the balances of each component of accumulated other comprehensive loss for Great Plains Energy and KCP&L.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Plains Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
(a)
|
|
Defined Benefit Pension Items
(a)
|
|
|
Total
(a)
|
|
|
|
(millions)
|
Year to Date September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance January 1
|
|
|
$
|
(10.1
|
)
|
|
|
|
$
|
(1.9
|
)
|
|
|
|
$
|
(12.0
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
4.1
|
|
|
|
|
0.4
|
|
|
|
|
4.5
|
|
|
Net current period other comprehensive income
|
|
|
4.1
|
|
|
|
|
0.4
|
|
|
|
|
4.5
|
|
|
Ending balance September 30
|
|
|
$
|
(6.0
|
)
|
|
|
|
$
|
(1.5
|
)
|
|
|
|
$
|
(7.5
|
)
|
|
Year to Date September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance January 1
|
|
|
$
|
(15.8
|
)
|
|
|
|
$
|
(2.9
|
)
|
|
|
|
$
|
(18.7
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
4.2
|
|
|
|
|
0.3
|
|
|
|
|
4.5
|
|
|
Net current period other comprehensive income
|
|
|
4.2
|
|
|
|
|
0.3
|
|
|
|
|
4.5
|
|
|
Ending balance September 30
|
|
|
$
|
(11.6
|
)
|
|
|
|
$
|
(2.6
|
)
|
|
|
|
$
|
(14.2
|
)
|
|
(a)
Net of tax
|
|
|
|
|
|
|
|
KCP&L
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
(a)
|
|
|
(millions)
|
Year to date September 30, 2016
|
|
|
|
|
Beginning balance January 1
|
|
|
$
|
(9.6
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
4.0
|
|
|
Net current period other comprehensive income
|
|
|
4.0
|
|
|
Ending balance September 30
|
|
|
$
|
(5.6
|
)
|
|
Year to date September 30, 2015
|
|
|
|
|
Beginning balance January 1
|
|
|
$
|
(14.9
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
4.0
|
|
|
Net current period other comprehensive income
|
|
|
4.0
|
|
|
Ending balance September 30
|
|
|
$
|
(10.9
|
)
|
|
(a)
Net of tax
The following tables reflect the effect on certain line items of net income from amounts reclassified out of each component of accumulated other comprehensive loss for Great Plains Energy and KCP&L.
|
|
|
|
|
|
|
|
|
|
|
|
Great Plains Energy
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Loss
|
|
Affected Line Item in the Income Statement
|
Three Months Ended September 30
|
|
2016
|
|
2015
|
|
|
|
|
(millions)
|
|
|
Gains and (losses) on cash flow hedges (effective portion)
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(2.3
|
)
|
|
$
|
(2.3
|
)
|
|
Interest charges
|
|
|
(2.3
|
)
|
|
(2.3
|
)
|
|
Income before income tax expense and income from equity investments
|
|
|
1.0
|
|
|
0.9
|
|
|
Income tax benefit
|
|
|
$
|
(1.3
|
)
|
|
$
|
(1.4
|
)
|
|
Net income
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
Net losses included in net periodic benefit costs
|
|
$
|
(0.2
|
)
|
|
$
|
(0.1
|
)
|
|
Utility operating and maintenance expenses
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
Income before income tax expense and income from equity investments
|
|
|
—
|
|
|
0.1
|
|
|
Income tax benefit
|
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
|
Net income
|
|
|
|
|
|
|
|
Total reclassifications, net of tax
|
|
$
|
(1.5
|
)
|
|
$
|
(1.4
|
)
|
|
Net income
|
|
|
|
|
|
|
|
Great Plains Energy
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Loss
|
|
Affected Line Item in the Income Statement
|
Year to Date September 30
|
|
2016
|
|
2015
|
|
|
|
|
(millions)
|
|
|
Gains and (losses) on cash flow hedges (effective portion)
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(6.9
|
)
|
|
$
|
(6.9
|
)
|
|
Interest charges
|
|
|
(6.9
|
)
|
|
(6.9
|
)
|
|
Income before income tax expense and income from equity investments
|
|
|
2.8
|
|
|
2.7
|
|
|
Income tax benefit
|
|
|
$
|
(4.1
|
)
|
|
$
|
(4.2
|
)
|
|
Net income
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
Net losses included in net periodic benefit costs
|
|
$
|
(0.6
|
)
|
|
$
|
(0.5
|
)
|
|
Utility operating and maintenance expenses
|
|
|
(0.6
|
)
|
|
(0.5
|
)
|
|
Income before income tax expense and income from equity investments
|
|
|
0.2
|
|
|
0.2
|
|
|
Income tax benefit
|
|
|
$
|
(0.4
|
)
|
|
$
|
(0.3
|
)
|
|
Net income
|
|
|
|
|
|
|
|
Total reclassifications, net of tax
|
|
$
|
(4.5
|
)
|
|
$
|
(4.5
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
KCP&L
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Loss
|
|
Affected Line Item in the Income Statement
|
Three Months Ended September 30
|
|
2016
|
|
2015
|
|
|
|
|
(millions)
|
|
|
Gains and (losses) on cash flow hedges (effective portion)
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(2.2
|
)
|
|
$
|
(2.2
|
)
|
|
Interest charges
|
|
|
(2.2
|
)
|
|
(2.2
|
)
|
|
Income before income tax expense
|
|
|
1.0
|
|
|
0.9
|
|
|
Income tax benefit
|
Total reclassifications, net of tax
|
|
$
|
(1.2
|
)
|
|
$
|
(1.3
|
)
|
|
Net income
|
|
|
|
|
|
|
|
KCP&L
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Loss
|
|
Affected Line Item in the Income Statement
|
Year to Date September 30
|
|
2016
|
|
2015
|
|
|
|
|
(millions)
|
|
|
Gains and (losses) on cash flow hedges (effective portion)
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(6.6
|
)
|
|
$
|
(6.6
|
)
|
|
Interest charges
|
|
|
(6.6
|
)
|
|
(6.6
|
)
|
|
Income before income tax expense
|
|
|
2.6
|
|
|
2.6
|
|
|
Income tax benefit
|
Total reclassifications, net of tax
|
|
$
|
(4.0
|
)
|
|
$
|
(4.0
|
)
|
|
Net income
|
20. TAXES
Components of income tax expense are detailed in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
Year to Date
September 30
|
Great Plains Energy
|
2016
|
|
2015
|
2016
|
|
2015
|
Current income taxes
|
(millions)
|
Federal
|
$
|
—
|
|
|
$
|
(0.8
|
)
|
$
|
(0.1
|
)
|
|
$
|
(0.3
|
)
|
State
|
—
|
|
|
0.5
|
|
0.3
|
|
|
0.4
|
|
Total
|
—
|
|
|
(0.3
|
)
|
0.2
|
|
|
0.1
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
Federal
|
70.1
|
|
|
66.4
|
|
91.5
|
|
|
91.8
|
|
State
|
13.0
|
|
|
12.4
|
|
18.4
|
|
|
18.3
|
|
Total
|
83.1
|
|
|
78.8
|
|
109.9
|
|
|
110.1
|
|
Investment tax credit
|
|
|
|
|
|
|
Deferral
|
—
|
|
|
0.5
|
|
2.5
|
|
|
0.5
|
|
Amortization
|
(0.4
|
)
|
|
(0.4
|
)
|
(1.1
|
)
|
|
(1.1
|
)
|
Total
|
(0.4
|
)
|
|
0.1
|
|
1.4
|
|
|
(0.6
|
)
|
Income tax expense
|
$
|
82.7
|
|
|
$
|
78.6
|
|
$
|
111.5
|
|
|
$
|
109.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
Year to Date
September 30
|
KCP&L
|
2016
|
|
2015
|
2016
|
|
2015
|
Current income taxes
|
(millions)
|
Federal
|
$
|
35.4
|
|
|
$
|
43.9
|
|
$
|
36.6
|
|
|
$
|
42.4
|
|
State
|
6.4
|
|
|
7.1
|
|
6.7
|
|
|
6.7
|
|
Total
|
41.8
|
|
|
51.0
|
|
43.3
|
|
|
49.1
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
Federal
|
22.5
|
|
|
(1.6
|
)
|
61.5
|
|
|
14.6
|
|
State
|
4.5
|
|
|
0.8
|
|
12.5
|
|
|
5.2
|
|
Total
|
27.0
|
|
|
(0.8
|
)
|
74.0
|
|
|
19.8
|
|
Investment tax credit
|
|
|
|
|
|
|
Deferral
|
—
|
|
|
0.5
|
|
—
|
|
|
0.5
|
|
Amortization
|
(0.3
|
)
|
|
(0.2
|
)
|
(0.8
|
)
|
|
(0.7
|
)
|
Total
|
(0.3
|
)
|
|
0.3
|
|
(0.8
|
)
|
|
(0.2
|
)
|
Income tax expense
|
$
|
68.5
|
|
|
$
|
50.5
|
|
$
|
116.5
|
|
|
$
|
68.7
|
|
Effective Income Tax Rates
Effective income tax rates reflected in the financial statements and the reasons for their differences from the statutory federal rates are detailed in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
Year to Date
September 30
|
Great Plains Energy
|
2016
|
|
2015
|
2016
|
|
2015
|
Federal statutory income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
35.0
|
%
|
|
35.0
|
%
|
Differences between book and tax depreciation not normalized
|
(0.3
|
)
|
|
0.3
|
|
(0.2
|
)
|
|
0.4
|
|
Amortization of investment tax credits
|
(0.2
|
)
|
|
(0.2
|
)
|
(0.4
|
)
|
|
(0.4
|
)
|
Federal income tax credits
|
(1.1
|
)
|
|
(1.2
|
)
|
(2.7
|
)
|
|
(2.6
|
)
|
State income taxes
|
3.9
|
|
|
4.2
|
|
4.0
|
|
|
4.0
|
|
Transaction costs
|
1.0
|
|
|
—
|
|
1.0
|
|
|
—
|
|
Other
|
(0.1
|
)
|
|
0.2
|
|
—
|
|
|
0.2
|
|
Effective income tax rate
|
38.2
|
%
|
|
38.3
|
%
|
36.7
|
%
|
|
36.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
Year to Date
September 30
|
KCP&L
|
2016
|
|
2015
|
2016
|
|
2015
|
Federal statutory income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
35.0
|
%
|
|
35.0
|
%
|
Differences between book and tax depreciation not normalized
|
(0.5
|
)
|
|
0.4
|
|
(0.3
|
)
|
|
0.6
|
|
Amortization of investment tax credits
|
(0.1
|
)
|
|
(0.2
|
)
|
(0.2
|
)
|
|
(0.4
|
)
|
Federal income tax credits
|
(1.2
|
)
|
|
(1.8
|
)
|
(2.3
|
)
|
|
(3.9
|
)
|
State income taxes
|
3.8
|
|
|
3.9
|
|
3.8
|
|
|
3.9
|
|
Other
|
(0.2
|
)
|
|
0.1
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Effective income tax rate
|
36.8
|
%
|
|
37.4
|
%
|
35.9
|
%
|
|
35.1
|
%
|
21
. SEGMENTS AND RELATED INFORMATION
Great Plains Energy has one reportable segment based on its method of internal reporting, which segregates reportable segments based on products and services, management responsibility and regulation. The one reportable business segment is electric utility, consisting of KCP&L, GMO's regulated utility operations and GMO Receivables Company. Other includes GMO activity other than its regulated utility operations, GPETHC and
unallocated corporate charges including costs to achieve the anticipated acquisition of Westar. The summary of significant accounting policies applies to the reportable segment. Segment performance is evaluated based on net income.
The following tables reflect summarized financial information concerning Great Plains Energy's reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
Electric
Utility
|
|
Other
|
|
Eliminations
|
|
Great Plains
Energy
|
|
|
(millions)
|
Operating revenues
|
|
$
|
856.8
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
856.8
|
|
|
Depreciation and amortization
|
|
(86.4
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(86.4
|
)
|
|
Interest (charges) income
|
|
(49.3
|
)
|
|
|
|
(26.4
|
)
|
|
|
|
8.1
|
|
|
|
|
(67.6
|
)
|
|
Income tax (expense) benefit
|
|
(95.9
|
)
|
|
|
|
13.2
|
|
|
|
|
—
|
|
|
|
|
(82.7
|
)
|
|
Net income (loss)
|
|
161.1
|
|
|
|
|
(27.5
|
)
|
|
|
|
—
|
|
|
|
|
133.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year to Date September 30, 2016
|
Electric
Utility
|
|
Other
|
|
Eliminations
|
|
Great Plains
Energy
|
|
|
(millions)
|
Operating revenues
|
|
$
|
2,099.7
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
2,099.7
|
|
|
Depreciation and amortization
|
|
(256.9
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(256.9
|
)
|
|
Interest (charges) income
|
|
(147.4
|
)
|
|
|
|
(128.4
|
)
|
|
|
|
24.1
|
|
|
|
|
(251.7
|
)
|
|
Income tax (expense) benefit
|
|
(160.2
|
)
|
|
|
|
48.7
|
|
|
|
|
—
|
|
|
|
|
(111.5
|
)
|
|
Net income (loss)
|
|
278.4
|
|
|
|
|
(86.4
|
)
|
|
|
|
—
|
|
|
|
|
192.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
Electric
Utility
|
|
Other
|
|
Eliminations
|
|
Great Plains
Energy
|
|
|
(millions)
|
Operating revenues
|
|
$
|
781.4
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
781.4
|
|
|
Depreciation and amortization
|
|
(82.4
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(82.4
|
)
|
|
Interest (charges) income
|
|
(48.9
|
)
|
|
|
|
(10.2
|
)
|
|
|
|
8.1
|
|
|
|
|
(51.0
|
)
|
|
Income tax expense
|
|
(78.5
|
)
|
|
|
|
(0.1
|
)
|
|
|
|
—
|
|
|
|
|
(78.6
|
)
|
|
Net income (loss)
|
|
129.1
|
|
|
|
|
(2.3
|
)
|
|
|
|
—
|
|
|
|
|
126.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year to Date September 30, 2015
|
Electric
Utility
|
|
Other
|
|
Eliminations
|
|
Great Plains
Energy
|
|
|
(millions)
|
Operating revenues
|
|
$
|
1,939.5
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
1,939.5
|
|
|
Depreciation and amortization
|
|
(245.7
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(245.7
|
)
|
|
Interest (charges) income
|
|
(142.1
|
)
|
|
|
|
(30.3
|
)
|
|
|
|
24.1
|
|
|
|
|
(148.3
|
)
|
|
Income tax (expense) benefit
|
|
(112.0
|
)
|
|
|
|
2.4
|
|
|
|
|
—
|
|
|
|
|
(109.6
|
)
|
|
Net income (loss)
|
|
196.4
|
|
|
|
|
(6.3
|
)
|
|
|
|
—
|
|
|
|
|
190.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
Utility
|
|
Other
|
|
Eliminations
|
|
Great Plains
Energy
|
September 30, 2016
|
|
(millions)
|
|
Assets
|
|
$
|
11,337.1
|
|
|
|
|
$
|
114.5
|
|
|
|
|
$
|
(406.9
|
)
|
|
|
|
$
|
11,044.7
|
|
|
Capital expenditures
(a)
|
|
435.3
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
435.3
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
11,045.5
|
|
|
|
|
$
|
(51.1
|
)
|
|
|
|
$
|
(255.8
|
)
|
|
|
|
$
|
10,738.6
|
|
|
Capital expenditures
(a)
|
|
677.1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
677.1
|
|
|
(a)
Capital expenditures reflect year to date amounts for the periods presented.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GREAT PLAINS ENERGY INCORPORATED
EXECUTIVE SUMMARY
Description of Business
Great Plains Energy is a public utility holding company and does not own or operate any significant assets other than the stock of its subsidiaries.
Great Plains Energy's sole reportable business segment is electric utility. Electric utility consists of KCP&L, a regulated utility, GMO's regulated utility operations and GMO Receivables Company. Electric utility has
approximately 6,400
MWs of owned generating capacity and engages in the generation, transmission, distribution and sale of electricity to approximately
853,000
customers in the states of Missouri and Kansas. Electric utility's retail electricity rates
are comparable
to the national average of investor-owned utilities.
Great Plains Energy's corporate and other activities not included in the sole reportable business segment includes GMO activity other than its regulated utility operations, GPETHC and unallocated corporate charges including costs to achieve the anticipated acquisition of Westar.
Anticipated Acquisition of Westar Energy, Inc.
On May 29, 2016, Great Plains Energy entered into a Merger Agreement by and among Great Plains Energy, Westar, and, from and after its accession to the Merger Agreement, Merger Sub. Pursuant to the Merger Agreement, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into Westar, with Westar continuing as the surviving corporation. Upon closing, pursuant to the Merger Agreement, Great Plains Energy will acquire Westar for (i) $51.00 in cash and (ii) a number, rounded to the nearest 1/10,000 of a share, of Great Plains Energy common stock equal to an exchange ratio that may vary between 0.2709 and 0.3148, based upon the volume-weighted average price per share of Great Plains Energy common stock during a 20 trading day period prior to the closing date of the merger, for each share of Westar common stock issued and outstanding immediately prior to the effective time of the merger, with Westar becoming a wholly owned subsidiary of Great Plains Energy.
Great Plains Energy's anticipated acquisition of Westar was unanimously approved by the Great Plains Energy Board and the Westar Board, has received the required approvals of each of Great Plains Energy's and Westar's shareholders and has received early termination of the waiting period under the HSR Act with respect to antitrust review. The anticipated acquisition remains subject to regulatory approvals from KCC, NRC, FERC and the FCC; as well as other customary conditions.
On October 3, 2016, Great Plains Energy completed registered public offerings of 60.5 million shares of common stock for total net proceeds of $1.55 billion and 17.3 million depositary shares each representing a 1/20th interest in a share of Great Plains Energy's Series B Preferred Stock for total net proceeds of $836.6 million. The proceeds from these offerings will be used to finance a portion of the cash consideration for the anticipated acquisition.
See Note 2 to the consolidated financial statements for more information regarding the acquisition.
Earnings Overview
Great Plains Energy's earnings available for common shareholders for the three months ended
September 30, 2016
, increased to
$132.7 million
or
$0.86
per share from
$126.4 million
or
$0.82
per share for the same period in
2015
driven primarily by new retail rates; warmer weather; new cost recovery mechanisms and an increase in weather-normalized demand; partially offset by costs to achieve the anticipated acquisition of Westar; an increase in utility operating and maintenance expense, depreciation and amortization expense and general taxes; and higher income tax expense.
Great Plains Energy's earnings available for common shareholders year to date
September 30, 2016
, increased to
$190.3 million
or
$1.23
per share from
$188.9 million
or
$1.22
per share for the same period in
2015
driven primarily by new retail rates; warmer weather; new cost recovery mechanisms and an increase in MEEIA throughput disincentive; partially offset by costs to achieve the anticipated acquisition of Westar; an increase in utility operating and maintenance expense, depreciation and amortization expense, general taxes and interest charges; and higher income tax expense.
For additional information regarding the change in earnings, refer to the Great Plains Energy Results of Operations and the Electric Utility Results of Operations sections within this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
Adjusted Earnings (Non-GAAP)
Great Plains Energy's adjusted earnings (non-GAAP) for the three months ended and year to date
September 30, 2016
, were
$154.2 million
or
$1.00
per share and
$265.8 million
or
$1.72
per share, respectively. For the three months ended and year to date
September 30, 2015
, adjusted earnings (non-GAAP) and GAAP earnings were the same at $126.4 million or $0.82 per share and $188.9 million or $1.22 per share, respectively. In addition to earnings available for common shareholders, Great Plains Energy's management uses adjusted earnings (non-GAAP) to evaluate earnings without the impact of costs to achieve the anticipated acquisition of Westar. Adjusted earnings (non-GAAP) excludes certain costs, expenses, gains and losses resulting from the anticipated acquisition. This information is intended to enhance an investor's overall understanding of results. Adjusted earnings (non-GAAP) is used internally to measure performance against budget and in reports for management and the Great Plains Energy Board. Adjusted earnings (non-GAAP) is a financial measure that is not calculated in accordance with GAAP and may not be comparable to other companies' presentations or more useful than the GAAP information provided elsewhere in this report.
The following table provides a reconciliation between earnings available for common shareholders as determined in accordance with GAAP and adjusted earnings (non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2016
|
|
Year to Date
September 30, 2016
|
|
|
|
|
|
(millions, except per share amounts)
|
|
|
|
Earnings per diluted share
|
|
|
|
Earnings per diluted share
|
Earnings available for common shareholders
|
$
|
132.7
|
|
$
|
0.86
|
|
|
$
|
190.3
|
|
|
$
|
1.23
|
|
Costs to achieve the anticipated acquisition of Westar:
|
|
|
|
|
|
|
Operating expense
(a)
|
14.4
|
|
|
|
19.4
|
|
|
|
Financing
(b)
|
14.3
|
|
|
|
19.0
|
|
|
|
Mark-to-market impacts of interest rate swaps
(c)
|
1.8
|
|
|
|
78.8
|
|
|
|
Income tax benefit
|
(9.6
|
)
|
|
|
(42.3
|
)
|
|
|
Redemption of cumulative preferred stock
(d)
|
0.6
|
|
|
|
0.6
|
|
|
|
Adjusted earnings (non-GAAP)
|
$
|
154.2
|
|
$
|
1.00
|
|
|
$
|
265.8
|
|
|
$
|
1.72
|
|
(a)
Reflects legal, advisory and consulting fees and are included in Costs to achieve the anticipated acquisition of Westar on the consolidated statements of comprehensive income
.
(b)
Reflects fees incurred to finance the anticipated acquisition of Westar, including fees for a bridge term loan facility, and are included in interest charges on the consolidated statements of comprehensive income.
(c)
Reflects the mark-to-market loss on interest rate swaps entered into in connection with financing the anticipated acquisition of Westar and are included in interest charges on the consolidated statements of comprehensive income.
(d)
Reflects reductions to earnings available for common shareholders related to the redemption of cumulative preferred stock, including the redemption premium and are included in preferred stock dividend requirements and redemption premium on the consolidated statements of comprehensive income.
Regulatory Proceedings
See Note
6
to the consolidated financial statements for information regarding regulatory proceedings.
Impact of Recently Issued Accounting Standards
See Note 1 to the consolidated financial statements for information regarding the impact of recently issued accounting standards.
Wolf Creek Refueling Outage
Wolf Creek's most recent refueling outage began on September 10, 2016, and the unit is expected to return to service in November 2016. Wolf Creek's previous refueling outage was from February 28, 2015 to May 3, 2015.
ENVIRONMENTAL MATTERS
See Note
14
to the consolidated financial statements for information regarding environmental matters.
RELATED PARTY TRANSACTIONS
See Note
16
to the consolidated financial statements for information regarding related party transactions.
GREAT PLAINS ENERGY RESULTS OF OPERATIONS
The following table summarizes Great Plains Energy's comparative results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Year to Date
September 30
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(millions)
|
Operating revenues
|
$
|
856.8
|
|
|
$
|
781.4
|
|
|
$
|
2,099.7
|
|
|
$
|
1,939.5
|
|
Fuel
|
(105.7
|
)
|
|
(124.5
|
)
|
|
(285.7
|
)
|
|
(332.0
|
)
|
Purchased power
|
(78.4
|
)
|
|
(52.1
|
)
|
|
(176.5
|
)
|
|
(146.3
|
)
|
Transmission
|
(23.8
|
)
|
|
(23.9
|
)
|
|
(64.5
|
)
|
|
(65.1
|
)
|
Other operating expenses
|
(266.2
|
)
|
|
(241.8
|
)
|
|
(742.6
|
)
|
|
(703.7
|
)
|
Costs to achieve the anticipated acquisition of Westar
|
(14.4
|
)
|
|
—
|
|
|
(19.4
|
)
|
|
—
|
|
Depreciation and amortization
|
(86.4
|
)
|
|
(82.4
|
)
|
|
(256.9
|
)
|
|
(245.7
|
)
|
Operating income
|
281.9
|
|
|
256.7
|
|
|
554.1
|
|
|
446.7
|
|
Non-operating income and expenses
|
1.3
|
|
|
(0.5
|
)
|
|
(1.0
|
)
|
|
0.4
|
|
Interest charges
|
(67.6
|
)
|
|
(51.0
|
)
|
|
(251.7
|
)
|
|
(148.3
|
)
|
Income tax expense
|
(82.7
|
)
|
|
(78.6
|
)
|
|
(111.5
|
)
|
|
(109.6
|
)
|
Income from equity investments
|
0.7
|
|
|
0.2
|
|
|
2.1
|
|
|
0.9
|
|
Net income
|
133.6
|
|
|
126.8
|
|
|
192.0
|
|
|
190.1
|
|
Preferred dividends and redemption premium
|
(0.9
|
)
|
|
(0.4
|
)
|
|
(1.7
|
)
|
|
(1.2
|
)
|
Earnings available for common shareholders
|
$
|
132.7
|
|
|
$
|
126.4
|
|
|
$
|
190.3
|
|
|
$
|
188.9
|
|
Reconciliation of gross margin to operating revenue:
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
856.8
|
|
|
$
|
781.4
|
|
|
$
|
2,099.7
|
|
|
$
|
1,939.5
|
|
Fuel
|
(105.7
|
)
|
|
(124.5
|
)
|
|
(285.7
|
)
|
|
(332.0
|
)
|
Purchased power
|
(78.4
|
)
|
|
(52.1
|
)
|
|
(176.5
|
)
|
|
(146.3
|
)
|
Transmission
|
(23.8
|
)
|
|
(23.9
|
)
|
|
(64.5
|
)
|
|
(65.1
|
)
|
Gross margin
(a)
|
$
|
648.9
|
|
|
$
|
580.9
|
|
|
$
|
1,573.0
|
|
|
$
|
1,396.1
|
|
|
|
(a)
|
Gross margin is a non-GAAP financial measure. See explanation of gross margin below.
|
Electric Utility Segment
Electric utility's
net income
increased $32.0 million for the three months ended
September 30, 2016
, compared to the same period in
2015
primarily due to:
|
|
•
|
a $68.0 million increase in gross margin driven by new retail rates, warmer weather, new cost recovery mechanisms, an increase in weather-normalized demand and an increase in recovery of programs costs for energy efficiency programs under MEEIA, partially offset by a decrease in other items including lower transmission revenue;
|
|
|
•
|
a $17.0 million increase in other operating expenses driven by an increase in pension expense, an increase in program costs for energy efficiency programs under MEEIA and an increase in general taxes driven by higher property taxes and higher gross receipt taxes due to an increase in retail revenues;
|
|
|
•
|
a $4.0 million increase in depreciation and amortization expense driven by capital additions; and
|
|
|
•
|
a $17.4 million increase in income tax expense primarily due to an increase in pre-tax income.
|
Electric utility's
net income
increased $82.0 million year to date
September 30, 2016
, compared to the same period in
2015
primarily due to:
|
|
•
|
a $176.9 million increase in gross margin driven by new retail rates, warmer weather, new cost recovery mechanisms, an increase in MEEIA throughput disincentive and an increase in recovery of program costs for energy efficiency programs under MEEIA, partially offset by a decrease in other items including higher transmission expense;
|
|
|
•
|
a $29.9 million increase in other operating expenses driven by an increase in Wolf Creek operating and maintenance expenses primarily due to increased refueling outage amortization, an increase in pension expense, an increase in program costs for energy efficiency programs under MEEIA and an increase in general taxes driven by higher property taxes and higher gross receipts taxes due to an increase in retail revenues, partially offset by a decrease in plant operating and maintenance expenses;
|
|
|
•
|
an $11.2 million increase in depreciation and amortization expense driven by capital additions;
|
|
|
•
|
a $5.3 million increase in interest charges primarily due to an increase in interest expense in 2016 related to KCP&L's issuance of $350 million of 3.65% Senior Notes in August 2015; partially offset by a decrease in interest expense due to KCP&L's purchase in lieu of redemption of its $50.0 million and $21.9 million EIRR Series 2005 bonds in September 2015; and
|
|
|
•
|
a $48.2 million increase in income tax expense primarily due to an increase in pre-tax income.
|
Corporate and Other Activities
Great Plains Energy's corporate and other activities loss increased $25.7 million for the three months ended
September 30, 2016
, compared to the same period in
2015
primarily due to:
|
|
•
|
$14.4 million of operating expenses for costs to achieve the anticipated acquisition of Westar;
|
|
|
•
|
$14.3 million of interest charges for fees incurred for a bridge term loan facility entered into in connection with the anticipated acquisition of Westar;
|
|
|
•
|
a $1.8 million mark-to-market loss on interest rate swaps entered into in June 2016 to hedge against interest rate fluctuations on future issuances of long-term debt expected to be issued to finance a portion of the cash consideration for the anticipated acquisition of Westar
;
|
|
|
•
|
$9.6 million of income tax benefits related to these items; and
|
|
|
•
|
$0.6 million of reductions to earnings available for common shareholders related to the redemption of Great Plains Energy's cumulative preferred stock in August 2016.
|
Great Plains Energy's corporate and other activities loss increased $80.6 million year to date
September 30, 2016
, compared to the same period in
2015
primarily due to:
|
|
•
|
$19.4 million of operating expenses for costs to achieve the anticipated acquisition of Westar;
|
|
|
•
|
$19.0 million of interest charges for fees incurred for a bridge term loan facility entered into in connection with the anticipated acquisition of Westar;
|
|
|
•
|
a $78.8 million mark-to-market loss on interest rate swaps entered into in June 2016 to hedge against interest rate fluctuations on future issuances of long-term debt expected to be issued to finance a portion of the cash consideration for the anticipated acquisition of Westar
;
|
|
|
•
|
$42.3 million of income tax benefits related to these items; and
|
|
|
•
|
$0.6 million of reductions to earnings available for common shareholders related to the redemption of Great Plains Energy's cumulative preferred stock in August 2016.
|
Gross Margin
Gross margin is a financial measure that is not calculated in accordance with GAAP. Gross margin, as used by Great Plains Energy and KCP&L, is defined as operating revenues less fuel, purchased power and transmission. Expenses for fuel, purchased power and certain transmission costs, offset by wholesale sales margin, are subject to recovery through cost adjustment mechanisms, except for KCP&L's Missouri retail operations prior to September 29, 2015, when a cost adjustment mechanism was approved. As a result, operating revenues increase or decrease in relation to a significant portion of these expenses. Management believes that gross margin provides a meaningful basis for evaluating electric utility's operations across periods than operating revenues because gross margin excludes the revenue effect of fluctuations in these expenses. Gross margin is used internally to measure performance against budget and in reports for management and the Great Plains Energy Board. The Companies' definition of gross margin may differ from similar terms used by other companies.
ELECTRIC UTILITY RESULTS OF OPERATIONS
The following table summarizes the electric utility segment results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Year to Date
September 30
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(millions)
|
Operating revenues
|
$
|
856.8
|
|
|
$
|
781.4
|
|
|
$
|
2,099.7
|
|
|
$
|
1,939.5
|
|
Fuel
|
(105.7
|
)
|
|
(124.5
|
)
|
|
(285.7
|
)
|
|
(332.0
|
)
|
Purchased power
|
(78.4
|
)
|
|
(52.1
|
)
|
|
(176.5
|
)
|
|
(146.3
|
)
|
Transmission
|
(23.8
|
)
|
|
(23.9
|
)
|
|
(64.5
|
)
|
|
(65.1
|
)
|
Other operating expenses
|
(257.8
|
)
|
|
(240.8
|
)
|
|
(730.9
|
)
|
|
(701.0
|
)
|
Depreciation and amortization
|
(86.4
|
)
|
|
(82.4
|
)
|
|
(256.9
|
)
|
|
(245.7
|
)
|
Operating income
|
304.7
|
|
|
257.7
|
|
|
585.2
|
|
|
449.4
|
|
Non-operating income and expenses
|
1.6
|
|
|
(1.2
|
)
|
|
0.8
|
|
|
1.1
|
|
Interest charges
|
(49.3
|
)
|
|
(48.9
|
)
|
|
(147.4
|
)
|
|
(142.1
|
)
|
Income tax expense
|
(95.9
|
)
|
|
(78.5
|
)
|
|
(160.2
|
)
|
|
(112.0
|
)
|
Net income
|
$
|
161.1
|
|
|
$
|
129.1
|
|
|
$
|
278.4
|
|
|
$
|
196.4
|
|
Reconciliation of gross margin to operating revenue
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
856.8
|
|
|
$
|
781.4
|
|
|
$
|
2,099.7
|
|
|
$
|
1,939.5
|
|
Fuel
|
(105.7
|
)
|
|
(124.5
|
)
|
|
(285.7
|
)
|
|
(332.0
|
)
|
Purchased power
|
(78.4
|
)
|
|
(52.1
|
)
|
|
(176.5
|
)
|
|
(146.3
|
)
|
Transmission
|
(23.8
|
)
|
|
(23.9
|
)
|
|
(64.5
|
)
|
|
(65.1
|
)
|
Gross margin
(a)
|
$
|
648.9
|
|
|
$
|
580.9
|
|
|
$
|
1,573.0
|
|
|
$
|
1,396.1
|
|
|
|
(a)
|
Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great Plains Energy's Results of Operations.
|
Electric Utility Gross Margin and MWh Sales
The following table summarizes electric utility's gross margin and MWhs sold.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and Costs
|
|
%
|
|
MWhs Sold
|
|
%
|
Three Months Ended September 30
|
2016
|
|
2015
|
Change
(c)
|
2016
|
|
2015
|
|
Change
|
Retail revenues
|
(millions)
|
|
|
|
(thousands)
|
|
|
Residential
|
$
|
380.4
|
|
|
$
|
338.9
|
|
|
12
|
|
|
2,786
|
|
|
2,631
|
|
|
6
|
|
Commercial
|
327.4
|
|
|
299.7
|
|
|
9
|
|
|
3,069
|
|
|
3,002
|
|
|
2
|
|
Industrial
|
66.4
|
|
|
64.8
|
|
|
2
|
|
|
842
|
|
|
855
|
|
|
(2
|
)
|
Other retail revenues
|
5.3
|
|
|
5.3
|
|
|
—
|
|
|
29
|
|
|
28
|
|
|
1
|
|
Provision for rate refund
|
1.5
|
|
|
—
|
|
|
N/M
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Energy efficiency (MEEIA)
(a)
|
17.0
|
|
|
12.5
|
|
|
35
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Total retail
|
798.0
|
|
|
721.2
|
|
|
11
|
|
|
6,726
|
|
|
6,516
|
|
|
3
|
|
Wholesale revenues
|
48.0
|
|
|
46.0
|
|
|
4
|
|
|
1,878
|
|
|
1,987
|
|
|
(6
|
)
|
Other revenues
|
10.8
|
|
|
14.2
|
|
|
(26
|
)
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Operating revenues
|
856.8
|
|
|
781.4
|
|
|
10
|
|
|
8,604
|
|
|
8,503
|
|
|
1
|
|
Fuel
|
(105.7
|
)
|
|
(124.5
|
)
|
|
(15
|
)
|
|
|
|
|
|
|
Purchased power
|
(78.4
|
)
|
|
(52.1
|
)
|
|
50
|
|
|
|
|
|
|
|
Transmission
|
(23.8
|
)
|
|
(23.9
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
Gross margin
(b)
|
$
|
648.9
|
|
|
$
|
580.9
|
|
|
12
|
|
|
|
|
|
|
|
(a)
Consists of recovery of program costs of $16.3 million and $11.1 million for the three months ended September 30, 2016, and 2015, respectively, that have a direct offset in utility operating and maintenance expenses and recovery of throughput disincentive of $0.7 million and $1.4 million for the three months ended September 30, 2016, and 2015, respectively.
|
(b)
Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great Plains Energy's Results of Operations.
|
(c)
N/M - not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and Costs
|
|
%
|
|
MWhs Sold
|
|
%
|
Year to Date September 30
|
2016
|
|
2015
|
Change
(c)
|
2016
|
|
2015
|
|
Change
|
Retail revenues
|
(millions)
|
|
|
|
(thousands)
|
|
|
Residential
|
877.3
|
|
|
797.7
|
|
|
10
|
|
|
6,878
|
|
|
6,763
|
|
|
2
|
|
Commercial
|
828.8
|
|
|
771.0
|
|
|
7
|
|
|
8,231
|
|
|
8,260
|
|
|
—
|
|
Industrial
|
178.2
|
|
|
168.7
|
|
|
6
|
|
|
2,394
|
|
|
2,399
|
|
|
—
|
|
Other retail revenues
|
15.9
|
|
|
15.2
|
|
|
6
|
|
|
87
|
|
|
86
|
|
|
1
|
|
Provision for rate refund
|
(13.2
|
)
|
|
—
|
|
|
N/M
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Energy efficiency (MEEIA)
(a)
|
47.6
|
|
|
31.4
|
|
|
51
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Total retail
|
1,934.6
|
|
|
1,784.0
|
|
|
8
|
|
|
17,590
|
|
|
17,508
|
|
|
1
|
|
Wholesale revenues
|
124.5
|
|
|
115.3
|
|
|
8
|
|
|
6,279
|
|
|
4,751
|
|
|
32
|
|
Other revenues
|
40.6
|
|
|
40.2
|
|
|
1
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Operating revenues
|
2,099.7
|
|
|
1,939.5
|
|
|
8
|
|
|
23,869
|
|
|
22,259
|
|
|
7
|
|
Fuel
|
(285.7
|
)
|
|
(332.0
|
)
|
|
(14
|
)
|
|
|
|
|
|
|
Purchased power
|
(176.5
|
)
|
|
(146.3
|
)
|
|
21
|
|
|
|
|
|
|
|
Transmission
|
(64.5
|
)
|
|
(65.1
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
Gross margin
(b)
|
1,573.0
|
|
|
1,396.1
|
|
|
13
|
|
|
|
|
|
|
|
(a)
Consists of recovery of program costs of $33.3 million and $28.3 million year to date September 30, 2016, and 2015, respectively, that have a direct offset in utility operating and maintenance expenses and recovery of throughput disincentive of $14.3 million and $3.1 million year to date September 30, 2016, and 2015, respectively.
|
(b)
Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great Plains Energy's Results of Operations.
|
(c)
N/M - not meaningful
|
Electric utility's gross margin increased $68.0 million for the
three months ended
September 30, 2016
, compared to the same period in
2015
primarily driven by:
|
|
•
|
an estimated $46 million increase due to new retail rates and an estimated $9 million increase due to new cost recovery mechanisms for KCP&L in Missouri effective September 29, 2015, and in Kansas effective October 1, 2015;
|
|
|
•
|
an estimated $12 million increase due to warmer weather driven by a 7% increase in cooling degree days;
|
|
|
•
|
an estimated $7 million increase from weather-normalized retail demand;
|
|
|
•
|
a $5.2 million increase for recovery of program costs for energy efficiency programs under MEEIA, which have a direct offset in utility operating and maintenance expense; and
|
|
|
•
|
an estimated $10 million decrease due to other items including lower transmission revenue.
|
Electric utility's gross margin increased $176.9 million year to date
September 30, 2016
, compared to the same period in
2015
primarily driven by:
|
|
•
|
an estimated $111 million increase due to new retail rates and an estimated $37 million increase due to new cost recovery mechanisms for KCP&L in Missouri effective September 29, 2015, and in Kansas effective October 1, 2015;
|
|
|
•
|
an $11.2 million increase in MEEIA throughput disincentive;
|
|
|
•
|
an estimated $23 million increase due to warmer weather with a 13% increase in cooling degree days in the second and third quarters of 2016 partially offset by a 16% decrease in heating degree days in the first quarter of 2016;
|
|
|
•
|
a $5.0 million increase for recovery of program costs for energy efficiency programs under MEEIA, which have a direct offset in utility operating and maintenance expense; and
|
|
|
•
|
an estimated $9 million decrease due to other items including higher transmission expense.
|
Electric Utility Other Operating Expenses
(including utility operating and maintenance expenses, general taxes and other)
Electric utility's other operating expenses increased $17.0 million for the three months ended
September 30, 2016
, compared to the same period in
2015
primarily due to:
|
|
•
|
a $2.2 million increase in pension expense corresponding to the resetting of pension expense trackers with the effective date of new retail rates;
|
|
|
•
|
a $5.2 million increase in program costs for energy efficiency programs under MEEIA, which have a direct offset in revenue; and
|
|
|
•
|
a $5.6 million increase in general taxes driven by higher property taxes and higher gross receipts taxes due to an increase in retail revenues.
|
Electric utility's other operating expenses increased $29.9 million year to date
September 30, 2016
, compared to the same period in
2015
primarily due to:
|
|
•
|
a $4.2 million increase in Wolf Creek operating and maintenance expenses primarily due to increased refueling outage amortization;
|
|
|
•
|
a $6.7 million increase in pension expense corresponding to the resetting of pension expense trackers with the effective date of new retail rates;
|
|
|
•
|
a $5.0 million increase in program costs for energy efficiency programs under MEEIA, which have a direct offset in revenue;
|
|
|
•
|
an $11.7 million increase in general taxes driven by higher property taxes and higher gross receipts taxes due to an increase in retail revenues; and
|
|
|
•
|
a $5.3 million decrease in plant operating and maintenance expense due to fewer planned outages in 2016.
|
Electric Utility Depreciation and Amortization
Electric utility's depreciation and amortization increased $4.0 million and $11.2 million for the three months ended and year to date
September 30, 2016
, respectively, compared to the same periods in
2015
due to capital additions.
Electric Utility Interest Charges
Electric utility's interest charges increased $5.3 million year to date
September 30, 2016
, compared to the same period in
2015
primarily due to a $7.9 million increase in interest expense related to KCP&L's issuance of $350 million of 3.65% Senior Notes in August 2015; partially offset by a $2.2 million decrease in interest expense due to KCP&L's purchase in lieu of redemption of its $50.0 million and $21.9 million EIRR Series 2005 bonds in September 2015.
Electric Utility Income Tax Expense
Electric utility's income tax expense increased $17.4 million and $48.2 million, respectively, for the three months ended and year to date
September 30, 2016
, compared to the same periods in
2015
primarily due to increased pre-tax income.
GREAT PLAINS ENERGY SIGNIFICANT BALANCE SHEET CHANGES
(
September 30, 2016
compared to
December 31, 2015
)
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Great Plains Energy's receivables, net increased $46.4 million primarily due to seasonal increases in customer accounts receivable.
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Great Plains Energy's notes payable increased $94.0 million primarily due to borrowings for up-front fees and other expenses incurred in connection with the anticipated acquisition of Westar.
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Great Plains Energy's commercial paper
decreased
$66.9 million
due to the repayment of $180.3 million of commercial paper at KCP&L with funds from operations partially offset by an increase in commercial paper of $113.4 million at GMO due to borrowings for general corporate purposes.
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Great Plains Energy's current maturities of long-term debt increased $381.0 million and long-term debt decreased $380.5 million due to the reclassification of KCP&L's $250.0 million of 5.85% Senior Notes and $31.0 million of 1.25% EIRR Series 1992 bonds and Great Plains Energy's $100.0 million of 6.875% Senior Notes from long-term to current.
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Great Plains Energy's accounts payable decreased $125.2 million primarily due to the timing of cash payments.
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Great Plains Energy's accrued taxes increased $91.8 million primarily due to the timing of property tax payments.
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Great Plains Energy's derivative instruments - current liabilities increased $78.3 million due to a $78.8 million mark-to-market loss on interest rate swaps entered into in June 2016 to hedge against interest rate fluctuations on future issuances of long-term debt expected to be issued to finance a portion of the cash consideration for the anticipated acquisition of Westar.
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Great Plains Energy's cumulative preferred stock $100 par value decreased $39.0 million due to the redemption of its 390,000 shares of outstanding cumulative preferred stock in August 2016.
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CAPITAL REQUIREMENTS AND LIQUIDITY
Great Plains Energy operates through its subsidiaries and has no material assets other than the stock of its subsidiaries. Great Plains Energy's ability to make payments on its debt securities and its ability to pay dividends is dependent on its receipt of dividends or other distributions from its subsidiaries, proceeds from the issuance of its securities and borrowing under its revolving credit facility.
Great Plains Energy's capital requirements are principally comprised of debt maturities and electric utility's construction and other capital expenditures. These items as well as additional cash and capital requirements, including the anticipated acquisition of Westar, are discussed below.
Great Plains Energy's liquid resources at
September 30, 2016
, consisted of
$12.0 million
of cash and cash equivalents on hand and $
983.8 million
of available borrowing capacity from unused bank lines of credit and receivable sale agreements. The available borrowing capacity consisted of $
95.8 million
from Great Plains Energy's revolving credit facility, $
597.2 million
from KCP&L's credit facilities and $
290.8 million
from GMO's credit facilities. See Notes 4 and
10
to the consolidated financial statements for more information regarding the receivable sale agreements and revolving credit facilities, respectively. Generally, Great Plains Energy uses these liquid resources to meet its day-to-day cash flow requirements, and from time to time issues equity and/or long-term debt to repay short-term debt or increase cash balances.
Great Plains Energy intends to meet day-to-day cash flow requirements including interest payments, retirement of maturing debt, construction requirements, dividends and pension benefit plan funding requirements with a combination of internally generated funds and proceeds from short-term debt. From time to time, Great Plains Energy issues equity and/or long-term debt to repay short-term debt or increase cash balances. Great Plains Energy's intention to meet a portion of these requirements with internally generated funds may be impacted by the effect of inflation on operating expenses, the level of MWh sales, regulatory actions, compliance with environmental regulations and the availability of generating units. In addition, Great Plains Energy may issue equity, equity-linked securities and/or debt to finance growth.
For a description of Great Plains Energy's proposed financing plan with respect to the anticipated acquisition of Westar, see Note 2 to the consolidated financial statements.
Great Plains Energy has a 364-day $5.1 billion senior unsecured bridge term loan facility to support the anticipated acquisition of Westar and provide flexibility for timing of long-term financing. See Note
10
to the consolidated financial statements for additional information.
Cash Flows from Operating Activities
Great Plains Energy generated positive cash flows from operating activities for the periods presented. The
$77.5 million
increase
in cash flows from operating activities for Great Plains Energy year to date September 30,
2016
, compared to the same period in
2015
was primarily due to new retail rates and new cost recovery mechanisms for KCP&L. Other changes in working capital are detailed in Note 3 to the consolidated financial statements. The individual components of working capital vary with normal business cycles and operations.
Cash Flows from Investing Activities
Great Plains Energy's cash used for investing activities varies with the timing of utility capital expenditures and purchases of investments and nonutility property. Investing activities are offset by proceeds from the sale of properties and insurance recoveries.
Great Plains Energy's utility capital expenditures
decreased
$85.6 million
year to date September 30, 2016, compared to the same period in 2015 primarily due to a decrease in cash utility capital expenditures related to infrastructure and system improvements.
Cash Flows from Financing Activities
Great Plains Energy's cash flows from financing activities year to date September 30, 2016, reflect
$40.1 million
paid for the redemption of its 390,000 shares of cumulative preferred stock and
$68.7 million
in issuance fees related to establishing Great Plains Energy's bridge term loan facility and a payment to OMERS pursuant to a stock purchase agreement.
Great Plains Energy's cash flows from financing activities year to date September 30, 2015, reflect KCP&L's issuance, at a discount, of $350.0 million of 3.65% Senior Notes that mature in 2025, with the proceeds used to purchase in lieu of redemption $71.9 million of EIRR bonds and repay short-term borrowings.
Financing Authorization
Under stipulations with MPSC and KCC, Great Plains Energy and KCP&L maintain common equity at not less than 30% and 35%, respectively, of total capitalization (including only the amount of short-term debt in excess of the amount of construction work in progress). KCP&L's long-term financing activities are subject to the authorization of the MPSC. On June 30, 2016, KCP&L's MPSC authorization to issue long-term debt expired. KCP&L will seek new authorization if and when it is deemed necessary.
KCP&L's and GMO's short-term financing activities are subject to the authorization of FERC. In November 2014, FERC authorized KCP&L to have outstanding at any one time up to a total of $1.0 billion in short-term debt instruments through December 2016. At September 30, 2016 there was
$1.0 billion
available under this authorization. In October 2016, KCP&L filed a request with FERC for authorization to issue up to a total of $1.0 billion in short-term debt instruments effective December 2016 through December 2018, subject to the same terms as the previous authorization which expires in December 2016. In February 2016, FERC authorized GMO to have outstanding at any one time up to a total of $750.0 million in short-term debt instruments through March 2018. At
September 30, 2016
, there was
$592.9 million
available under this authorization.
KCP&L and GMO are also authorized by FERC to participate in the Great Plains Energy money pool, an internal financing arrangement in which funds may be lent on a short-term basis to KCP&L and GMO. At
September 30, 2016
, GMO had outstanding payables to Great Plains Energy and KCP&L under the money pool of
$1.7 million
and
$11.1 million
, respectively.
Debt Agreements
See Note
10
to the consolidated financial statements for information regarding revolving credit facilities.
Significant Financing Activities
Great Plains Energy has an effective shelf registration statement for the sale of unlimited amounts of securities with the SEC that became effective in March 2015 and expires in March 2018. In September 2016, Great Plains Energy filed a post-effective amendment to its shelf registration statement to register depositary shares and preference stock among the types of securities that Great Plains Energy may offer and sell.
In October 2016, Great Plains Energy completed a registered public offering of
60.5 million
shares of common stock, without par value, at a public offering price of
$26.45
per share, for total gross proceeds of approximately
$1.6 billion
(net proceeds of approximately
$1.55 billion
after underwriting discount). Great Plains Energy plans to use proceeds from the offering to finance a portion of the cash consideration for the anticipated acquisition of Westar.
In October 2016, Great Plains Energy completed a registered public offering of
17.3 million
depositary shares, each representing a 1/20th interest in a share of Great Plains Energy's Series B Preferred Stock, without par value, at a public offering price of
$50
per depositary share for total gross proceeds of
$862.5 million
(net proceeds of approximately
$836.6 million
after underwriting discount). Great Plains Energy plans to use proceeds from the offering to finance a portion of the cash consideration for the anticipated acquisition of Westar.
Pensions
The Company incurs significant costs in providing defined benefit plans for substantially all active and inactive employees of KCP&L and GMO and its 47% ownership share of WCNOC's defined benefit plans. Funding of the plans follows legal and regulatory requirements with funding equaling or exceeding the minimum requirements of ERISA.
Year to date September 30,
2016
, the Company contributed
$23.6 million
to the pension plans and expects to contribute an additional
$52.4 million
in 2016 to satisfy the ERISA funding requirements and the MPSC and KCC rate orders, the majority of which is expected to be paid by KCP&L.
Additionally, the Company provides post-retirement health and life insurance benefits for certain retired employees and expects to make benefit contributions of
$5.1 million
under the provisions of these plans in
2016
, the majority of which is expected to be paid by KCP&L.
Management believes the Company has adequate access to capital resources through cash flows from operations or through existing lines of credit to support these funding requirements.
KANSAS CITY POWER & LIGHT COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
The following table summarizes KCP&L's consolidated comparative results of operations.
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Year to Date
September 30
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2016
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2015
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(millions)
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Operating revenues
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$
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1,474.1
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$
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1,314.1
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Fuel
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(205.6
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)
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(237.3
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)
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Purchased power
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(93.1
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)
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(73.4
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)
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Transmission
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(44.8
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)
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(42.3
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)
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Other operating expenses
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(518.8
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(490.7
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)
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Depreciation and amortization
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(184.1
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)
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(175.0
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)
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Operating income
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427.7
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295.4
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Non-operating income and expenses
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1.9
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0.6
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Interest charges
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(104.9
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)
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(100.4
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)
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Income tax expense
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(116.5
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(68.7
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)
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Net income
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$
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208.2
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$
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126.9
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Reconciliation of gross margin to operating revenue:
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Operating revenues
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$
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1,474.1
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$
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1,314.1
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Fuel
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(205.6
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)
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(237.3
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)
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Purchased power
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(93.1
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)
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(73.4
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)
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Transmission
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(44.8
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)
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(42.3
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)
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Gross margin
(a)
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$
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1,130.6
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$
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961.1
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(a)
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Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great Plains Energy's Results of Operations.
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KCP&L Gross Margin and MWh Sales
The following table summarizes KCP&L's gross margin and MWhs sold.
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Revenues and Costs
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%
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MWhs Sold
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%
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Year to Date September 30
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2016
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2015
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Change
(c)
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2016
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2015
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Change
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Retail revenues
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(millions)
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(thousands)
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Residential
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$
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573.2
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$
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503.9
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14
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4,200
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4,117
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2
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Commercial
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615.4
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560.6
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10
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5,755
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5,783
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—
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Industrial
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113.0
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102.6
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10
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1,399
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1,386
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1
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Other retail revenues
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10.0
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9.0
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10
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63
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62
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1
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Provision for rate refund
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0.5
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—
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N/M
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N/A
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N/A
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N/A
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Energy efficiency (MEEIA)
(a)
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29.6
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16.1
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84
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N/A
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N/A
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N/A
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Total retail
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1,341.7
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1,192.2
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13
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11,417
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11,348
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1
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Wholesale revenues
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115.3
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104.3
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11
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5,971
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4,431
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35
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Other revenues
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17.1
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17.6
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(3
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)
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N/A
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N/A
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N/A
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Operating revenues
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1,474.1
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1,314.1
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12
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17,388
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15,779
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10
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Fuel
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(205.6
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)
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(237.3
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)
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(13
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)
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Purchased power
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(93.1
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)
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(73.4
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27
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Transmission
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(44.8
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)
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(42.3
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)
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6
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Gross margin
(b)
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$
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1,130.6
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$
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961.1
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18
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(a)
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Consists of recovery of program costs of $20.6 million and $12.8 million year to date September 30, 2016, and 2015, respectively, that have a direct offset in operating and maintenance expenses and recovery of throughput disincentive of $9.0 million and $3.3 million year to date September 30, 2016, and 2015, respectively.
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(b)
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Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great Plains Energy's Results of Operations.
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KCP&L's gross margin increased $169.5 million year to date
September 30, 2016
, compared to the same period in
2015
primarily due to:
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an estimated $111 million increase due to new retail rates and an estimated $37 million increase due to new cost recovery mechanisms for KCP&L in Missouri effective September 29, 2015, and in Kansas effective October 1, 2015;
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a $5.7 million increase in MEEIA throughput disincentive;
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an estimated $14 million increase due to warmer weather with a 13% increase in cooling degree days in the second and third quarter of 2016 partially offset by a 16% decrease in heating degree days in the first quarter of 2016; and
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a $7.8 million increase for recovery of program costs for energy efficiency programs under MEEIA, which have a direct offset in operating and maintenance expense.
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KCP&L Other Operating Expenses
(including operating and maintenance expenses, general taxes and other)
KCP&L's other operating expenses increased $28.1 million year to date
September 30, 2016
, compared to the same period in
2015
primarily due to:
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a $4.2 million increase in Wolf Creek operating and maintenance expenses primarily due to increased refueling outage amortization;
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a $6.3 million increase in pension expense corresponding to the resetting of pension expense trackers with the effective date of new retail rates;
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a $7.8 million increase in program costs for energy efficiency programs under MEEIA, which have a direct offset in revenue;
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an $11.8 million increase in general taxes driven by higher property taxes and higher gross receipts taxes due to an increase in retail revenues; and
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a $4.7 million decrease in plant operating and maintenance expense due to fewer planned outages in 2016.
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KCP&L Depreciation and Amortization
KCP&L's depreciation and amortization expense increased $9.1 million year to date
September 30, 2016
, compared to the same period in
2015
due to capital additions.
KCP&L Interest Charges
KCP&L's interest charges increased $4.5 million year to date
September 30, 2016
, compared to the same period in
2015
primarily due to a $7.9 million increase in interest expense in 2016 related to the issuance of $350 million of 3.65% Senior Notes in August 2015; partially offset by a $2.2 million decrease due to KCP&L's purchase in lieu of redemption of its $50.0 million and $21.9 million EIRR Series 2005 bonds in September 2015.
KCP&L Income Tax Expense
KCP&L's income tax expense increased $47.8 million year to date
September 30, 2016
, compared to the same period in
2015
primarily due to increased pre-tax income.