Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
EDE > SEC Filings for EDE > Form 10-Q on 7-Nov-2011All Recent SEC Filings

Show all filings for EMPIRE DISTRICT ELECTRIC CO | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for EMPIRE DISTRICT ELECTRIC CO


7-Nov-2011

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE SUMMARY

We operate our businesses as three segments: electric, gas and other. The Empire District Electric Company (EDE) is an operating public utility engaged in the generation, purchase, transmission, distribution and sale of electricity in parts of Missouri, Kansas, Oklahoma and Arkansas. As part of our electric segment, we also provide water service to three towns in Missouri. The Empire District Gas Company (EDG) is our wholly owned subsidiary. It provides natural gas distribution to customers in 44 communities in northwest, north central and west central Missouri. Our other segment consists of our fiber optics business. During the twelve months ended September 30, 2011, 90.7% of our gross operating revenues were provided from sales from our electric segment (including 0.3% from the sale of water), 8.3% from our gas segment and 1.0% from our other segment.

Earnings

During the third quarter of 2011, basic earnings per weighted average share of common stock were $0.60 as compared to $0.56 in the third quarter of 2010 and diluted earnings per weighted average share of common stock were $0.60 as compared to $0.55 in the third quarter of 2010. For the nine months ended September 30, 2011, basic and diluted earnings per weighted average share of common stock were $1.11 as compared to $0.97 for the nine months ended September 30, 2010. For the twelve months ended September 30, 2011, basic and diluted earnings per weighted average share of common stock were $1.31 as compared to $1.19 for the twelve months ended September 30, 2010. The primary positive driver for all periods presented was increased electric revenues (due primarily to rate increases). Also positively impacting the nine and twelve month periods were decreased interest charges. The primary negative drivers for the nine and twelve month periods were changes in AFUDC amounts due to the completion of our construction program, increased depreciation and amortization amounts and the dilutive effect of additional shares issued. A portion of the increase in depreciation and amortization expense reflects the effect of additional regulatory amortization collected in revenues in our Missouri rate case effective September 2010. The regulatory amortization expense ended effective June 15, 2011.

The table below sets forth a reconciliation of basic and diluted earnings per share between the three months, nine months and twelve months ended September 30, 2010 and September 30, 2011, which is a non-GAAP presentation. The economic substance behind our non-GAAP earnings per share (EPS) measure is to present the after tax impact of significant items and components of the statement of income on a per share basis before the impact of additional stock issuances.

We believe this presentation is useful to investors because the statement of income does not readily show the EPS impact of the various components, including the effect of new stock issuances. This could limit the readers' understanding of the reasons for the EPS change from the previous year's EPS. This information is useful to management, and we believe this information is useful to investors, to better understand the reasons for the fluctuation in EPS between the prior and current years on a per share basis.

This reconciliation may not be comparable to other companies or more useful than the GAAP presentation included in the statement of income. We also note that this presentation does not purport to be an alternative to earnings per share determined in accordance with GAAP as a measure of operating performance or any other measure of financial performance presented in accordance with GAAP. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.


Table of Contents

                                                 Three Months      Nine Months      Twelve Months
                                                     Ended            Ended             Ended
Earnings Per Share - September 30, 2010         $         0.56    $        0.97    $          1.19

Revenues
Electric on-system                              $         0.17    $        0.57    $          0.79
Electric off-system and other                            (0.01 )           0.05               0.08
Gas                                                      (0.01 )          (0.05 )            (0.09 )
Other                                                     0.00             0.00               0.01
Expenses
Electric fuel and purchased power                         0.05            (0.06 )            (0.08 )
Cost of natural gas sold and transported                  0.00             0.05               0.09
Operating - electric segment                             (0.05 )          (0.07 )            (0.11 )
Operating -gas segment                                    0.00             0.01               0.02
Maintenance and repairs                                  (0.02 )          (0.06 )            (0.10 )
Depreciation and amortization                             0.00            (0.12 )            (0.20 )
Other taxes                                              (0.01 )          (0.04 )            (0.06 )
Interest charges                                         (0.01 )           0.03               0.07
AFUDC                                                    (0.02 )          (0.16 )            (0.23 )
Change in effective income tax rates                     (0.04 )           0.03               0.02
Other income and deductions                               0.00             0.00              (0.01 )
Dilutive effect of additional shares issued              (0.01 )          (0.04 )            (0.08 )
Earnings Per Share - September 30, 2011         $         0.60    $        1.11    $          1.31

Recent Activities

Tornado and Dividend Suspension

On May 22, 2011, a devastating EF-5 tornado hit the Joplin, Missouri area damaging or destroying thousands of homes and businesses. At the end of the second quarter of 2011, approximately 4,200 customers remained unable to return to service. Joplin's tornado recovery efforts during the third quarter of 2011, however, resulted in approximately 300 customers returning to service, leaving approximately 3,900 customers still unable to return to service due to damaged or destroyed structures. Approximately 600 temporary housing facilities were added to our system during the third quarter to shelter some local residents displaced by the tornado. We estimate lost customers from the tornado will reduce kilowatt hour sales approximately 2.5%-3% over the near term. Storm restoration costs are estimated to be in the $20 million to $30 million range, of which approximately $19.1 million has been incurred to date. The majority of these costs have been capitalized. The ongoing loss of revenue associated with the tornado has been mitigated by increased usage due to storm recovery efforts, rate increases that became effective during 2010 and early 2011 and record hot weather during the month of July. We expect a continuing loss of electric load and corresponding revenues as customers rebuild. In addition, we currently expect our growth to be relatively flat now through 2012 for our electric service territory.

In response to this expected loss of revenues, our level of retained earnings and other relevant factors, our Board of Directors suspended our quarterly dividend for the third and fourth quarters of 2011. Based on current conditions and knowledge, at the October 2011 meeting, the Board of Directors reaffirmed their expectation to re-establish the dividend at an approximate level of $0.25 per quarter beginning with the first quarter of 2012.

On June 6, 2011, we filed an Accounting Authority Order with the MPSC requesting authorization to defer expenses associated with the tornado and to allow for recovery of the loss of the fixed cost component included in our rates resulting from the lost sales. On June 23, 2011, Praxair, Inc. and Explorer Pipeline Company filed as intervenors with the MPSC, who granted their request on July 6, 2011. The order is still pending.


Table of Contents

New Union Agreement

At September 30, 2011, we had 742 full-time employees, including 50 employees of EDG. 337 of the EDE employees are members of Local 1474 of The International Brotherhood of Electrical Workers (IBEW). On October 17, 2011, the Local 1474 IBEW voted to ratify a new two-year agreement which will extend through October 31, 2013.

Coal Conservation related to Missouri River Flooding

The Iatan plant, located along the Missouri River north of Kansas City and operated by Kansas City Power & Light ("KCP&L"), was impacted by flooding in the Midwest during June and July of 2011. Beginning June 30, 2011 coal deliveries to Iatan were suspended. As a result, in early July it was decided to begin operating Iatan Units 1 and 2 at reduced loads in an effort to conserve coal. Additionally, we entered into a short term purchase of power for the month of August to address a portion of the lost generation from the Iatan units. We would expect that any additional fuel and purchased power costs incurred as a result of this event would be recovered in our rates through fuel recovery mechanisms. The Iatan plant returned to normal operations on October 13, 2011.

Amendment of EDE Mortgage

On June 9, 2011, we amended the Indenture of Mortgage and Deed of Trust of The Empire District Electric Company (EDE Mortgage) in order to provide us with additional flexibility to pay dividends to our shareholders by permitting the payment of any dividend or distribution on, or purchase of, shares of its common stock within 60 days after the related date of declaration or notice of such dividend, distribution or purchase if (i) on the date of declaration or notice, such dividend, distribution or purchase would have complied with the provisions of the indenture and (ii) as of the last day of the calendar month ended immediately preceding the date of such payment, our ratio of total indebtedness to total capitalization (after giving pro forma effect to the payment of such dividend, distribution, or purchase) was not more than 0.625 to 1. The amendment followed the successful completion of a solicitation of consents from the holders of our First Mortgage Bonds outstanding under the EDE Mortgage. We received consents from holders of 73.91% in aggregate principal amount of the outstanding bonds and paid consent fees of approximately $0.9 million. See "Dividends" below.

Financings

On January 28, 2011, we filed a $400 million shelf registration statement with the SEC covering our common stock, unsecured debt securities, preference stock, and first mortgage bonds. This shelf registration statement became effective on February 7, 2011. We have received regulatory approval for the issuance of securities under this shelf from all four states in our electric service territory, but we may only issue up to $250 million of such securities in the form of first mortgage bonds. We plan to use proceeds under this shelf to fund capital expenditures, refinancings of existing debt or general corporate needs during the three-year effective period.

Regulatory Matters

A settlement agreement among the parties to our Missouri rate case filed on September 28, 2010 was reached and filed with the MPSC on May 27, 2011, reflecting an overall annual increase in rates of $18.7 million, or approximately 4.7%, effective June 15, 2011. Due to rate design changes, this rate increase, however, will primarily impact our winter season rates which generally run from October through May. Also as part of the settlement, regulatory amortization expense of $14.5 million annually and construction accounting terminated on June 15, 2011. The MPSC approved the settlement agreement on June 1, 2011 and the new rates became effective on June 15, 2011.

On June 17, 2011, we filed an application with the Kansas Corporation Commission (KCC) seeking a rate increase of $1.5 million, or 6.39%. The rate increase is being requested to recover the costs associated with our investment in the Iatan 1, Iatan 2 and Plum Point generating units and the


Table of Contents

depreciation and operation and maintenance costs deferred since the in-service dates of the units. The June 17, 2011 filing was made under the KCC's abbreviated rate case rules which the KCC authorized in our 2009 Kansas rate case. The case includes a request to recover the Iatan and Plum Point cost deferrals over a 3-year period.

On June 30, 2011, we filed a request with the Oklahoma Corporation Commission (OCC) for an annual increase in base rates for our Oklahoma electric customers in the amount of $0.6 million, or 4.1% over the base rate and Capital Reliability Rider (CRR) revenues that are currently in effect.

On February 2, 2011 we entered into a unanimous settlement agreement with the parties involved in our Arkansas rate case filed August 19, 2010. The settlement included a general rate increase of $2.1 million, or 19%. The APSC approved the settlement on April 12, 2011 with the new rates effective April 13, 2011.

On March 12, 2010, we filed Generation Formula Rate (GFR) tariffs with the FERC which we propose to be utilized for our wholesale customers. On May 28, 2010, the FERC issued an order that conditionally approved our GFR filing subject to refund effective June 1, 2010. On June 30, 2010, three of our on-system wholesale customers were granted intervention in the GFR rate case. On September 15, 2010, the parties agreed to a settlement in principle and on May 24, 2011, we, the Missouri Public Utility Alliance and the cities of Monett, Mt. Vernon and Lockwood, Missouri filed a Settlement Agreement and Offer of Settlement with the FERC. We expect to refund approximately $1.2 million as a result of this settlement.

For additional information on all these cases, see "Rate Matters" below.

RESULTS OF OPERATIONS

The following discussion analyzes significant changes in the results of operations for the three-month, nine-month and twelve-month periods ended September 30, 2011, compared to the same periods ended September 30, 2010.

The following table represents our results of operations by operating segment for the applicable periods ended September 30 (in millions):

               Quarter Ended       Nine Months Ended       Twelve Months Ended
               2011      2010       2011        2010        2011          2010

Electric     $   25.3   $ 22.9   $     43.4    $  36.2   $     50.3    $     42.9
Gas              (0.4 )   (0.4 )        1.8        1.6          2.8           2.5
Other             0.3      0.5          1.1        1.1          1.6           1.5
Net income   $   25.2   $ 23.0   $     46.3    $  38.9   $     54.7    $     46.9


*Differences could occur due to rounding.

Electric Segment

Overview

Our electric segment income for the third quarter of 2011 was $25.3 million as compared to $22.9 million for the third quarter of 2010, an increase of $2.4 million, primarily due to the September 2010 Missouri rate increase, the September 2010 and March 2011 Oklahoma rate increases and the April 2011 Arkansas rate increase (discussed below).

Electric operating revenues comprised approximately 95.6% of our total operating revenues during the third quarter of 2011. Electric operating revenues for the third quarter of 2011 and 2010 were comprised of the following:

                          2011   2010
Residential               43.8 % 43.3 %
Commercial                30.1   30.9
Industrial                15.3   14.4
Wholesale on-system        3.9    4.0
Wholesale off-system       3.0    3.4
Miscellaneous sources*     2.5    2.5
Other electric revenues    1.4    1.5


*primarily public authorities


Table of Contents

The amounts and percentage changes from the prior periods in kilowatt-hour ("kWh") sales and operating revenues by major customer class for on-system sales and for off-system sales for the applicable periods ended September 30, were as follows:

                                                                    kWh Sales
                                                                  (in millions)
                        3 Months   3 Months              9 Months   9 Months              12 Months   12 Months
                         Ended      Ended        %        Ended      Ended        %         Ended       Ended        %
Customer Class            2011       2010     Change*      2011       2010     Change*      2011        2010      Change*
Residential                578.8      586.4      (1.3 )%  1,569.6    1,621.9      (3.2 )%   2,008.1     2,079.3      (3.4 )%
Commercial                 442.7      461.7      (4.1 )   1,202.9    1,252.9      (4.0 )    1,594.9     1,644.6      (3.0 )
Industrial                 277.7      272.3       2.0       777.4      762.7       1.9      1,021.7       997.0       2.5
Wholesale on-system        105.5      102.8       2.6       281.8      273.2       3.2        364.4       352.3       3.4
Other**                     34.3       33.8       1.5        98.3       97.2       1.2        127.6       127.7      (0.1 )
Total on-system sales    1,439.0    1,457.0      (1.2 )   3,930.0    4,007.9      (1.9 )    5,116.7     5,200.9      (1.6 )
Off-system                 132.9      158.2     (16.0 )     585.9      554.0       5.8        830.0       723.6      14.7
Total KWh Sales          1,571.9    1,615.2      (2.7 )   4,515.9    4,561.9      (1.0 )    5,946.7     5,924.5       0.4


*Percentage changes are based on actual kWh sales and may not agree to the rounded amounts shown above.

**Other kWh sales include street lighting, other public authorities and interdepartmental usage.

                                                            Electric Segment Operating Revenues
                                                                      ($ in millions)
                         3 Months     3 Months               9 Months     9 Months               12 Months     12 Months
                          Ended        Ended         %        Ended        Ended         %         Ended         Ended         %
Customer Class             2011         2010      Change*      2011         2010      Change*      2011          2010       Change*
Residential             $     68.8   $     63.5       8.4 % $    174.4   $    157.8      10.5 % $     221.4   $     200.2      10.6 %
Commercial                    47.3         45.2       4.5        119.6        109.8       9.0         156.2         141.4      10.5
Industrial                    24.0         21.2      13.4         60.5         52.3      15.7          77.9          67.0      16.3
Wholesale on-system            6.2          5.9       3.8         14.9         15.4      (3.2 )        18.7          19.5      (3.8 )
Other**                        3.9          3.6       9.6         10.6          9.3      13.7          13.6          12.0      13.0
Total on-system
revenues                $    150.2   $    139.4       7.8   $    380.0   $    344.6      10.3   $     487.8   $     440.1      10.8
Off-system                     4.7          5.0      (5.9 )       18.7         16.3      14.7          25.3          21.4      18.2
Total revenues from
kWh sales                    154.9        144.4       7.3        398.7        360.9      10.5         513.1         461.5      11.2
Miscellaneous
revenues***                    2.2          2.2      (1.3 )        6.3          5.5      12.8           8.3           7.6       8.9
Total electric
operating revenues      $    157.1   $    146.6       7.2   $    405.0   $    366.4      10.5   $     521.4   $     469.1      11.1
Water revenues                 0.5          0.5      (1.3 )        1.3          1.4      (1.8 )         1.8           1.8      (1.5 )
Total electric
segment operating
revenues                $    157.6   $    147.1       7.1   $    406.3   $    367.8      10.5   $     523.2   $     470.9      11.1


*Percentage changes are based on actual revenues and may not agree to the rounded amounts shown above.

**Other operating revenues include street lighting, other public authorities and interdepartmental usage.

***Miscellaneous revenues include transmission service revenue, late payment fees, renewable energy credit sales, rent, etc.

We have a fuel cost recovery mechanism in all of our jurisdictions, which significantly reduces the impact of fluctuating fuel costs on our net income. For this reason, we believe electric gross margin, although a non-GAAP measurement, is useful for understanding and analyzing changes in our electric operating performance from one period to the next. We define electric gross margins as electric revenues less fuel and purchased power costs.

The table below represents our electric gross margins for the applicable periods ended September 30 (in millions), which is a non-GAAP presentation. We believe this presentation is useful to investors and have included the analysis below as a complement to the financial information we provide in accordance with GAAP. However, these margins may not be comparable to other companies' presentations or more useful than the GAAP information we provide elsewhere in this report.

                           Quarter Ended        Nine Months Ended        Twelve Months Ended
                          2011       2010        2011         2010        2011          2010

Electric revenues       $  157.1   $  146.6   $    405.0    $  366.4   $     521.4    $   469.1
Fuel and purchased
power                       54.3       57.3        155.8       152.2         202.8        197.8
Electric gross
margins                 $  102.8   $   89.3   $    249.2    $  214.2   $     318.6    $   271.3
Margin as % of total
electric revenues           65.4 %     60.9 %       61.5 %      58.5 %        61.1 %       57.8 %


Table of Contents

Electric gross margins increased during 2011 in all periods presented mainly due to the Missouri, Oklahoma and Arkansas rate increases and to the July 2010 Kansas rate increase for the nine months and twelve months ended periods.

Quarter Ended September 30, 2011 Compared to Quarter Ended September 30, 2010

On-System Operating Revenues and Kilowatt-Hour Sales

KWh sales for our on-system customers decreased during the third quarter of 2011 as compared to the third quarter of 2010 primarily due to the loss of approximately 3,900 of our customers who remain unable to return to service due to damaged or destroyed structures resulting from the May 22, 2011 tornado, although some of the effect has been offset by temporary housing units. Revenues for our on-system customers increased approximately $10.8 million, or 7.8%. Rate changes, primarily the September 2010 Missouri rate increase, the September 2010 and March 2011 Oklahoma rate increases and the April 2011 Arkansas rate increase, contributed an estimated $13.1 million to revenues. We estimate the impact of the tornado, after adjusting for weather, was a 2.5% reduction in kilowatt hour sales which corresponds to a $4.3 million reduction in revenues due to negative sales growth (contraction), resulting from the loss of customers due to the loss of residences and businesses. Weather and other related factors increased revenues an estimated $2.0 million, primarily due to favorable weather in the third quarter of 2011 and restoration activities that partially mitigated the impact of some of our load loss, as tornado victims and outside volunteers needing housing occupied hotels, rental properties and some temporary structures during much of the summer. Total cooling degree days (the cumulative number of degrees that the average temperature for each day during that period was above 65 F) for the third quarter of 2011 were 4.8% more than the same period last year and 26.6% more than the 30-year average, mainly due to unseasonably hot weather in July 2011.

Residential and commercial kWh sales decreased during the third quarter of 2011 mainly due to customer contraction resulting from the loss of residences and businesses in the May 22, 2011 tornado. Residential and commercial revenues increased mainly due to the Missouri, Oklahoma and Arkansas rate increases discussed above.

Industrial kWh sales increased 2.0% during the third quarter of 2011 as compared to the third quarter of 2010. Industrial revenues increased mainly due to the Missouri, Oklahoma and Arkansas rate increases discussed above.

On-system wholesale kWh sales increased 2.6% during the third quarter of 2011 as compared to the same period in 2010 and revenues associated with these sales increased 3.8%, reflecting the warmer weather in the third quarter of 2011.

Off-System Electric Transactions

In addition to sales to our own customers, we also sell power to other utilities as available, including through the Southwest Power Pool (SPP) energy imbalance services (EIS) market. See "- Competition" below. The majority of our off-system sales margins are included as a component of the fuel adjustment clause in our Missouri, Kansas and Oklahoma jurisdictions and our transmission rider in our Arkansas jurisdiction and generally adjust the fuel and purchased power expense. As a result, nearly all of the off-system sales margin flows back to the customer and has little effect on income.

Off-system sales and revenues decreased during the third quarter of 2011 compared to the third quarter of 2010 as the excessive heat in the third quarter of 2011 required us to use our resources to serve our own load and therefore we had limited power available for sale. Total purchased power related expenses are included in our discussion of purchased power costs below.

Miscellaneous Revenues

Our miscellaneous revenues were $2.2 million for both the third quarter of 2011 and the third quarter of 2010. These revenues are comprised mainly of transmission revenues, late payment fees and renewable energy credit sales.


Table of Contents

Operating Revenue Deductions - Fuel and Purchased Power

During the third quarter of 2011, total fuel and purchased power expenses decreased approximately $3.0 million (5.2%). The table below is a reconciliation of our actual fuel and purchased power expenditures (netted with the regulatory adjustments) to the fuel and purchased power expense shown on our statement of income for the third quarter of 2011 and 2010.

  Add EDE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for EDE - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.