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| EDE > SEC Filings for EDE > Form 10-Q on 9-Aug-2012 | All Recent SEC Filings |
9-Aug-2012
Quarterly Report
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 which provides natural gas distribution to customers in 45 communities in northwest, north central and west central Missouri. Our other segment consists of our fiber optics business.
During the twelve months ended June 30, 2012, our gross operating revenues were derived as follows:
Electric segment sales* 91.8 % Gas segment sales 7.0 Other segment sales 1.2 |
Earnings
During the second quarter of 2012, basic and diluted earnings per weighted average share of common stock were $0.25 as compared to $0.22 in the second quarter of 2011. For the six months ended June 30, 2012, basic and diluted earnings per weighted average share of common stock were $0.49 as compared to $0.51 for the six months ended June 30, 2011. For the twelve months ended June 30, 2012, basic and diluted earnings per weighted average share of common stock were $1.29 as compared to $1.26 for the twelve months ended June 30, 2011.
The primary positive driver for the second quarter of 2012 was increased Missouri electric rates, which became effective in June 2011. The continuing return of customers following the May 2011 tornado also had a positive impact on electric revenues and electric gross margin, which we define as electric revenues less fuel and purchased power costs. However, the positive customer
impacts were offset by negative weather impacts on a quarter over quarter basis. Other operating and maintenance expenses increased over last year, negatively impacting net income.
Increased electric rates were also the primary positive drivers for the six months ended and twelve months ended June 30, 2012 as compared to the same periods last year. Weather and decreased customer counts, primarily resulting from the May 2011 tornado, were negative drivers during the 2012 periods, as discussed below. Other operating and maintenance expenses also increased during the six months ended and twelve months ended June 30, 2012, negatively impacting net income.
Factors impacting gross margin and net income for the quarter, six months ended June 30, 2012 and twelve months ended June 30, 2012, are presented on a segment basis under Results of Operations below.
The table below sets forth a reconciliation of basic and diluted earnings per share between the three months, six months and twelve months ended June 30, 2011 and June 30, 2012, 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. The dilutive effect of additional shares issued included in the table reflects the estimated impact of all shares issued during the periods ended June 30.
Three Months Six Months Twelve Months
Ended Ended Ended
Earnings Per Share - 2011 $ 0.22 $ 0.51 $ 1.26
Revenues
Electric segment $ 0.06 $ (0.07 ) $ 0.10
Gas segment (0.02 ) (0.10 ) (0.13 )
Other segment 0.00 0.01 0.01
Total Revenue 0.04 (0.16 ) (0.02 )
Electric fuel and purchased power 0.02 0.16 0.25
Cost of natural gas sold and transported 0.01 0.07 0.09
Margin 0.07 0.07 0.32
Operating - electric segment (0.05 ) (0.10 ) (0.20 )
Operating -gas segment (0.01 ) (0.01 ) 0.00
Operating -other segment 0.00 (0.01 ) (0.01 )
Maintenance and repairs (0.01 ) 0.00 (0.03 )
Depreciation and amortization 0.03 0.06 0.11
Other taxes 0.00 0.00 (0.02 )
Interest charges 0.00 (0.02 ) (0.05 )
AFUDC 0.00 0.00 (0.02 )
Change in effective income tax rates 0.00 (0.01 ) (0.07 )
Other income and deductions 0.00 0.00 0.01
Dilutive effect of additional shares issued 0.00 0.00 (0.01 )
Earnings Per Share - 2012 $ 0.25 $ 0.49 $ 1.29
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Recent Activities
Tornado Recovery and Activity
Joplin, Missouri continues to recover from the May 22, 2011 tornado. As of June 30, 2012, our system-wide customer count was down by approximately 1,100 as compared to the customer count levels prior to the May 2011 tornado. Storm restoration costs were approximately $24.7 million as of June 30, 2012. The majority of these costs have been capitalized. We expect to spend an additional $6.5 million to rebuild our destroyed substation, but anticipate insurance proceeds will cover most of this cost. We expect the loss of electric load and corresponding revenues to abate as customers rebuild. As we continue to add customers back to our system, our customer growth expectations range from approximately 0.5% to 1.1% annually over the next several years.
Regulatory Matters
On July 6, 2012, we filed a rate increase with the Missouri Public Service Commission (MPSC) for changes in rates for our Missouri electric customers. We are seeking an annual increase in base rate revenues of approximately $30.7 million, or 7.56%.
On May 21, 2012, we filed a rate increase with the MPSC for changes in rates for our Missouri water customers. We are seeking an annual increase in revenues of approximately $516,400, or 29.6 %.
On May 18, 2012, we filed with the Federal Energy Regulatory Commission (FERC) proposed revisions to our Open Access Transmission Tariff to implement a cost-based transmission formula rate to be effective August 1, 2012.
For additional information on all these cases, see "Rate Matters" below.
Financings
On April 1, 2012, we redeemed all $74.8 million aggregate principal amount of our First Mortgage Bonds, 7.00% Series due 2024. All $5.2 million of our First Mortgage Bonds, 5.20% Pollution Control Series due 2013, and all $8.0 million of our First Mortgage Bonds, 5.30% Pollution Control Series due 2013 were also redeemed with payment made to the trustee prior to March 31, 2012.
To replace this financing, as described in Note 6, on April 2, 2012, we entered into a Bond Purchase Agreement for a private placement of $88 million aggregate principal amount of 3.58% First Mortgage Bonds due April 2, 2027. The first settlement of $38 million occurred on April 2, 2012 and the second settlement of $50 million occurred on June 1, 2012. The bonds will mature on April 2, 2027. Interest is payable semi-annually on the bonds on each April 2 and October 2, commencing October 2, 2012.
Compliance Plan
Our environmental Compliance Plan, discussed in Note 7, continues on schedule. Construction is proceeding on the installation of a scrubber, fabric filter, and powder activated carbon injection system at our Asbury plant. Initial construction costs through June 30, 2012 were $13.7 million for 2012 and $15.0 million for the project to date, excluding AFUDC. This project is expected to be completed in early 2015 at a cost ranging from $112 million to $130 million, excluding AFUDC. The addition of this air quality control equipment will require the retirement of Asbury Unit 2, an 18 megawatt steam turbine that is currently used for peaking purposes.
The Compliance Plan also calls for the transition of Riverton Units 7 and 8 from operation on coal to full operation on natural gas and we currently expect this transition to be complete by the end of 2012. These units, along with Riverton Unit 9, will be retired upon conversion of Riverton Unit 12, a simple cycle combustion turbine, to a combined cycle unit, with scheduled completion in 2016. In order to facilitate the transition, we are in the process of utilizing Riverton's remaining coal inventory.
RESULTS OF OPERATIONS
The following discussion analyzes significant changes in the results of operations for the three-month, six-month and twelve-month periods ended June 30, 2012, compared to the same periods ended June 30, 2011.
The following table represents our results of operations by operating segment for the applicable periods ended June 30 (in millions):
Three Months Ended Six Months Ended Twelve Months Ended
2012 2011 2012 2011 2012 2011
Electric $ 10.7 $ 8.8 $ 18.9 $ 18.1 $ 51.5 $ 47.9
Gas (0.4 ) - 0.7 2.2 1.2 2.9
Other 0.4 0.4 0.9 0.8 1.7 1.7
Net income $ 10.7 $ 9.2 $ 20.5 $ 21.1 $ 54.4 $ 52.5
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Electric Segment
Gross Margin
As shown in the table below, electric segment gross margin increased approximately $5.5 million during the second quarter of 2012 as compared to the second quarter of 2011 mainly due to the June 2011 Missouri rate increase. The impacts of increased customer counts and less favorable weather were mostly offsetting.
The electric gross margin increased approximately $5.8 million for the six months ended June 30, 2012 as compared to the same period in 2011, mainly due to increased rates, offset by decreased demand resulting from mild winter weather in the first quarter of 2012 and changes in average customer counts in the first and second quarters of 2012 as compared to the same periods last year.
The electric gross margin increased approximately $23.0 million for the twelve months ended June 30, 2012 as compared to the same period in 2011, mainly due to increased revenues resulting from the June 2011 and September 2010 Missouri rate increases, the September 2010 and March 2011 Oklahoma rate increases, the January 2012 Kansas rate increase and the April 2011 Arkansas rate increase. Weather negatively impacted margins as unseasonably hot weather experienced during the summer months of 2011 was more than offset by the effects of record mild winter weather during the first quarter heating season of 2012 and a mild fourth quarter of 2011.
The table below represents our electric gross margins for the applicable periods ended June 30 (dollars in millions):
Three Months Ended Six Months Ended Twelve Months Ended
2012 2011 2012 2011 2012 2011
Electric segment
revenues $ 124.1 $ 120.3 $ 243.8 $ 248.7 $ 519.4 $ 512.7
Fuel and purchased
power 45.5 47.2 90.8 101.4 189.6 205.8
Electric segment
gross margins $ 78.6 $ 73.1 $ 153.0 $ 147.3 $ 329.8 $ 306.9
Margin as % of
total electric
segment revenues 63.3 % 60.8 % 62.8 % 59.2 % 63.5 % 59.9 %
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Although a non-GAAP presentation, we believe the presentation of gross margin is useful to investors and others in understanding and analyzing changes in our electric operating performance from one period to the next, and have included the analysis 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.
Sales and Revenues
Electric operating revenues comprised approximately 93.9% of our total operating
revenues during the second quarter of 2012. Electric operating revenues for the
second quarter of 2012 and 2011 were comprised of the following:
2012 2011
Residential 38.2 % 38.5 %
Commercial 33.5 31.7
Industrial 16.8 16.6
Wholesale on-system 3.8 3.8
Wholesale off-system 2.9 5.0
Miscellaneous sources* 2.8 2.7
Other electric revenues 2.0 1.7
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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 June 30, were as follows:
kWh Sales
(in millions)
Second Second 6 Months 6 Months 12 Months 12 Months
Quarter Quarter % Ended Ended % Ended Ended %
Customer Class 2012 2011 Change(1) 2012 2011 Change(1) 2012 2011 Change(1)
Residential 389.1 399.4 (2.6 )% 865.6 990.8 (12.6 )% 1,857.5 2,015.6 (7.8 )%
Commercial 399.5 384.5 3.9 737.3 760.2 (3.0 ) 1,553.4 1,613.9 (3.7 )
Industrial 269.6 262.6 2.7 511.3 499.6 2.3 1,034.4 1,016.3 1.8
Wholesale on-system 89.0 88.7 0.3 173.5 176.3 (1.6 ) 362.0 361.8 0.1
Other(2) 29.1 30.8 (5.6 ) 60.3 64.1 (5.8 ) 125.0 127.1 (1.7 )
Total on-system sales 1,176.3 1,166.0 0.9 2,348.0 2,491.0 (5.7 ) 4,932.3 5,134.7 (3.9 )
Off-system 171.4 195.1 (12.1 ) 308.1 453.0 (32.0 ) 595.1 855.3 (30.4 )
Total KWh Sales 1,347.7 1,361.1 (1.0 ) 2,656.1 2,944.0 (9.8 ) 5,527.4 5,990.0 (7.7 )
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(2) Other kWh sales include street lighting, other public authorities and interdepartmental usage.
KWh sales for our on-system customers increased 0.9% during the quarter ended June 30, 2012, as compared to the same period in 2011, mainly due to the continuing return of customers following the May 2011 tornado and continued industrial growth as compared to the second quarter of 2011. Although total cooling degree days (the cumulative number of degrees that the daily average temperature for each day during that period was above 65† F) for the second quarter of 2012 were 2.9% more than the same period last year and 57.9% more than the 30-year average, KWh sales for our residential customers decreased during the second quarter of 2012 as compared to the second quarter of 2011. This was primarily due to the unseasonably hot weather in June 2011 and a normal residential customer count during the second quarter of 2011 from April 1 until the May 2011 tornado. Commercial kWh sales increased during the second quarter of 2012 as compared to the second quarter of 2011 primarily due to the rebuilding of businesses destroyed in the May 2011 tornado.
KWh sales for our on-system customers decreased 5.7% during the six months ended June 30, 2012, as compared to the same period in 2011, primarily due to decreased demand. The record warm winter weather experienced during the second quarter of 2012 was more than offset by the effect of record warm weather in the first quarter of 2012. The decrease in residential kWh sales was also attributable to the loss of residences in the May 2011 tornado and the decrease in commercial kWh sales was mainly due to the loss of businesses in the May 2011 tornado. Industrial sales continued to increase during the six months ended June 30, 2012 as compared to the same period last year.
KWh sales for our on-system customers decreased 3.9% during the twelve months ended June 30, 2012, as compared to the same period in 2011, mainly due to the impact of the tornado and to decreased demand as unseasonably hot weather experienced during the summer months of 2011 was more than offset by the effects of record mild winter weather during the first quarter heating
season of 2012 and the fourth quarter of 2011. The record warm winter weather of the twelve month period ending June 30, 2012 lowered sales when compared to the same period a year ago. Residential and commercial kWh sales decreased primarily due to these weather impacts and the loss of residences and businesses in the May 2011 tornado. Industrial sales continued to increase during the twelve months ended June 30, 2012 as compared to the same period last year.
The amounts and percentage changes from the prior periods in electric segment operating revenues by major customer class for on-system and off-system sales for the applicable periods ended June 30, were as follows:
Electric Segment Operating Revenues
($ in millions)
3 Months 3 Months 6 Months 6 Months 12 Months 12 Months
Ended Ended % Ended Ended % Ended Ended %
Customer Class 2012 2011 Change(1) 2012 2011 Change(1) 2012 2011 Change(1)
Residential $ 47.3 $ 46.2 2.4 % $ 101.5 $ 105.5 (3.8 )% $ 217.7 $ 216.1 0.7 %
Commercial 41.4 38.0 8.8 75.8 72.3 4.8 160.9 154.1 4.4
Industrial 20.8 19.9 4.6 38.8 36.5 6.4 81.2 75.1 8.3
Wholesale on-system 4.7 4.5 3.2 8.6 8.8 (1.6 ) 19.0 18.5 2.5
Other(2) 3.4 3.3 3.6 6.9 6.6 3.9 14.1 13.2 6.7
Total on-system
revenues $ 117.6 $ 111.9 5.1 $ 231.6 $ 229.7 0.8 $ 492.9 $ 477.0 3.3
Off-system 3.6 6.0 (40.1 ) 6.8 14.0 (51.1 ) 16.1 25.6 (37.0 )
Total revenues from
kWh sales 121.2 117.9 2.8 238.4 243.7 (2.2 ) 509.0 502.6 1.3
Miscellaneous
revenues(3) 2.5 2.0 25.4 4.6 4.1 10.7 8.6 8.3 3.8
Total electric
operating revenues $ 123.7 $ 119.9 3.1 $ 243.0 $ 247.8 (2.0 ) $ 517.6 $ 510.9 1.3
Water revenues 0.4 0.4 3.6 0.8 0.9 (0.5 ) 1.8 1.8 (1.2 )
Total electric
segment operating
revenues $ 124.1 $ 120.3 3.1 $ 243.8 $ 248.7 (2.0 ) $ 519.4 $ 512.7 1.3
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(2) Other operating revenues include street lighting, other public authorities and interdepartmental usage.
(3) Miscellaneous revenues include transmission service revenue, late payment fees, renewable energy credit sales, rent, etc.
Revenues for our on-system customers increased $5.7 million during the second quarter of 2012 as compared to the second quarter of 2011. Rate changes, primarily the June 2011 Missouri rate increase, contributed an estimated $5.5 million to revenues. Improved customer counts increased revenues an estimated $1.5 million. The impact of weather and other related factors decreased revenues an estimated $1.3 million.
Revenues for our on-system customers increased $1.8 million for the six months ended June 30, 2012 as compared to the same period in 2011. Rate changes, primarily the June 2011 Missouri rate increase, the March 2011 Oklahoma rate increase, the January 2012 Kansas rate increase and the April 2011 Arkansas rate increase, contributed an estimated $17.2 million to revenues. Weather and other related factors decreased revenues an estimated $15.0 million during the six months ended June 30, 2012, due to the reasons previously discussed. Decreased customer counts, primarily resulting from the May 2011 tornado, reduced revenues an estimated $0.4 million.
Revenues for our on-system customers increased $15.9 million for the twelve months ended June 30, 2012 as compared to the same period in 2011. Rate changes, primarily the September 2010 and June 2011 Missouri rate increases, the September 2010 and March 2011 Oklahoma rate increases, the January 2012 Kansas rate increase and the April 2011 Arkansas rate increase, contributed an estimated $36.8 million to revenues. Weather and other related factors decreased revenues an estimated $13.9 million due to the reasons previously discussed. Decreased customer counts, resulting from the May 2011 tornado, reduced revenues an estimated $7.0 million. We estimate that the total impact due to decreased customer counts since the May 2011 tornado reduced revenues approximately $11.4 million through June 30, 2012.
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 margin or net income.
Operating Revenue Deductions - Fuel and Purchased Power
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 statements of income for the applicable periods ended June 30, 2012 and 2011. As shown below, fuel and purchased power costs decreased in all periods mainly due to lower volumes and the Southwest Power Administration (SWPA) amortization.
Three Months Six Months Twelve Months
Ended Ended Ended
(in millions) 2012 2011 2012 2011 2012 2011
Actual fuel and
purchased power
expenditures $ 39.9 45.6 $ 80.6 $ 95.9 $ 181.1 $ 197.9
Missouri fuel
adjustment recovery(1) 2.7 2.0 7.0 5.0 9.3 8.6
Missouri fuel
adjustment deferral(2) 3.2 (0.5 ) 5.0 0.5 1.7 (1.4 )
Kansas and Oklahoma
regulatory
adjustments(2) 0.5 (0.1 ) 0.8 (0.1 ) 0.4 0.2
SWPA amortization(3) (0.7 ) (0.1 ) (1.3 ) (0.1 ) (2.7 ) (0.1 )
Unrealized (gain)/loss
on derivatives (0.1 ) 0.3 (1.3 ) 0.2 (0.2 ) 0.6
Total fuel and
purchased power expense
per income statement $ 45.5 $ 47.2 $ 90.8 $ 101.4 $ 189.6 $ 205.8
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(2) A negative amount indicates costs have been under recovered from customers . . .
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