Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

Commission file number: 1-3368

THE EMPIRE DISTRICT ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

Registrant's telephone number: (417) 625-5100

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

        As of February 1, 2002, 19,778,408 shares of common stock were outstanding. Based upon the closing price on the New York Stock Exchange on February 1, 2002, the aggregate market value of the common stock of the Company held by nonaffiliates was approximately $405,457,364.

        The following documents have been incorporated by reference into the parts of the Form 10-K as indicated:

TABLE OF CONTENTS

2

FORWARD LOOKING STATEMENTS

        Certain matters discussed in this annual report are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements address or may address future plans, objectives, expectations and events or conditions concerning various matters such as capital expenditures, earnings, competition, litigation, our construction program, rate and other regulatory matters, liquidity and capital resources and accounting matters. Factors that could cause actual results to differ materially from those currently anticipated in such statements include: the cost and availability of purchased power and fuel, and the results of our activities (such as hedging) to reduce the volatility of such costs; electric utility restructuring, including ongoing state and federal activities; weather, business and economic conditions, and other factors which may impact customer growth; operation of our generation facilities; legislation; regulation, including rate relief and environmental regulation (such as NOx regulation); competition, including the impact of deregulation on off-system sales; changes in accounting requirements; other circumstances affecting anticipated rates, revenues and costs; the revision of our construction plans and cost estimates; the performance of projects undertaken by our non-regulated businesses and the success of efforts to invest in and develop new opportunities; and costs and effect of legal and administrative proceedings, settlements, investigations and claims. All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond our control. New factors emerge from time to time and it is not possible for management to predict all such factors or to assess the impact of each such factor on us. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.

3

PART I

ITEM 1. BUSINESS

General

        The Empire District Electric Company, a Kansas corporation organized in 1909, is an operating public utility engaged in the generation, purchase, transmission, distribution and sale of electricity in parts of Missouri, Kansas, Oklahoma and Arkansas. We also provide water service to three towns in Missouri. In 2001, 99.6% of our gross operating revenues were provided from the sale of electricity and 0.4% from the sale of water.

        The territory served by our electric operations embraces an area of about 10,000 square miles with a population of over 360,000. The service territory is located principally in Southwestern Missouri and also includes smaller areas in Southeastern Kansas, Northeastern Oklahoma and Northwestern Arkansas. The principal activities of these areas are light industry, agriculture and tourism. Of our total 2001 retail electric revenues, approximately 88% came from Missouri customers, 6% from Kansas customers, 3% from Oklahoma customers and 3% from Arkansas customers.

        We supply electric service at retail to 119 incorporated communities and to various unincorporated areas and at wholesale to four municipally-owned distribution systems and two rural electric cooperatives. The largest urban area we serve is the city of Joplin, Missouri, and its immediate vicinity, with a population of approximately 157,000. We operate under franchises having original terms of twenty years or longer in virtually all of the incorporated communities. Approximately 51% of our electric operating revenues in 2001 were derived from incorporated communities with franchises having at least ten years remaining and approximately 18% were derived from incorporated communities in which our franchises have remaining terms of ten years or less. Although our franchises contain no renewal provisions, in recent years we have obtained renewals of all of our expiring electric franchises prior to the expiration dates.

        Our electric operating revenues in 2001 were derived as follows: residential 42%, commercial 31%, industrial 17%, wholesale 6% and other 4%. Our largest single on-system wholesale customer is the city of Monett, Missouri, which in 2001 accounted for approximately 3% of electric revenues. No single retail customer accounted for more than 1% of electric revenues in 2001.

        We made an investment of approximately $0.8 million in 2001 and $1.9 million in 2000 in fiber optics cable and equipment which we are using in our own operations and leasing to other entities. We also offer electronic monitored security services, generators, surge suppressors, decorative lighting and other energy services. We created a wholly owned subsidiary in 2001, EDE Holdings, Inc., to hold our non-regulated companies. EDE Holdings is a holding company which owns: a 100% interest in Empire District Industries, Inc., a spinoff for our non-regulated business, a 100% interest in Conversant, Inc., a software company which will market the internet-based customer information system software formerly named Centurion that was developed by Empire employees and a 51% interest in transaeris, a start-up wireless internet provider.

4

Electric Generating Facilities and Capacity

        At December 31, 2001, our generating plants consisted of:

        We completed construction and commenced commercial operations in June 2001 of a 350 megawatt expansion at the State Line Power Plant resulting in a 500 megawatt combined-cycle unit (the "Combined Cycle Unit") of which we own 60%. This expansion entitles us to 150 megawatts of additional generating capacity and was a joint effort with Westar Generating, Inc. (WGI), a subsidiary of Western Resources, Inc. On October 25, 2001, we entered into an agreement with P2 Energy to purchase two Twin Pac aero units to be installed at the Empire Energy Center with generating capacity of 50 megawatts each. The first unit is to be delivered in October 2002 and is expected to be operational by April 2003. The second unit is scheduled to be delivered in October 2003 and is expected to be operational by April 2004. See Item 2, "Properties—Electric Facilities" for further information about these plants.

        We are a member of the Southwest Power Pool (SPP), a regional division of the North American Electric Reliability Council, and have been participating with other utility members in an effort to restructure the SPP to make it a regional transmission organization (RTO). On October 19, 2001, the SPP and Midwest Independent Transmission System Operator, Inc. (MISO) announced an agreement for the consolidation of the two organizations. In December 2001, the FERC approved the MISO as the first RTO. The agreement between the SPP and MISO to consolidate was completed in February 2002. The new organization will operate an interconnected transmission system encompassing over 120,000 megawatts of generation capacity. We intend to file with the FERC and the utility commissions in the four states in which we operate to transfer control over the operation of our transmission facilities to MISO. We cannot predict what effect, if any, this will have on our off-system sales and revenues. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Competition."

        We currently supplement our on-system generating capacity with purchases of capacity and energy from other utilities in order to meet the demands of our customers and the capacity margins applicable to us under current pooling agreements and NERC rules. We have contracted with Western Resources for the purchase of capacity and energy through May 31, 2010. We also have a short-term contract for the purchase of firm energy with American Electric Power from January 2002 through May 31, 2002. Similar agreements for such purchases with Western Resources and Southwestern Public Service Company, (a subsidiary of XCEL Energy) terminated on May 31, 2001. The amount of capacity purchased under these contracts supplements our on-system capacity and contributes to meeting our current expectations of future power needs. The following chart sets forth our purchase commitments and our anticipated owned capacity (in megawatts) during the indicated contract years (which run from

5

June 1 to May 31 of the following year). We currently expect to purchase additional capacity to meet reserve margins in 2005 and 2006 of 10 to 50 megawatts per year based on the current forecast of load.

*

Includes five-month AEP contract from January 2002 through May 31, 2002 for replacement energy during a 10-week planned maintenance outage at the Iatan Plant during the first quarter of 2002.

**

Includes capacity from the two Twin Pac aero units scheduled for completion in 2003 and 2004.

        The charges for capacity purchases under the contracts referred to above during calendar year 2001 amounted to approximately $20.4 million. Minimum charges for capacity purchases under such contracts total approximately $80.9 million for the period June 1, 2001, through May 31, 2006.

        The maximum hourly demand on our system reached a new record high of 1001 megawatts on August 9, 2001. Our previous record peak of 993 megawatts was established in August 2000. Our maximum hourly winter demand of 941 megawatts was set on December 19, 2000.

Construction Program

        Total gross property additions (including construction work in progress) for the three years ended December 31, 2001, amounted to $273.8 million, and retirements during the same period amounted to $34.6 million. Please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for more information.

        Our total construction-related expenditures, including allowance for funds used during construction, referred to as AFUDC, were $71.8 million in 2001 and for the next three years are estimated for planning purposes to be as follows:

*

Excludes AFUDC

        Our projected construction expenditures for new generating facilities include plans for the two Twin Pac aero units to be installed at the Empire Energy Center with generating capacity of 50 megawatts each. The first unit is scheduled to be delivered in October 2002 and is expected to be operational by April 2003. The second unit is scheduled to be delivered in October 2003 and is

6

expected to be operational by April 2004. The estimated cost for the purchase, construction and installation of these units will be approximately $18.8 million in 2002, $25.8 million in 2003 and $7.0 million in 2004. Additions to our transmission and distribution systems to meet projected increases in customer demand constitute the majority of the remainder of the projected construction expenditures for the three-year period listed above.

        Projected additions to existing generating facilities include $6.4 million in 2003 and $10.3 million in 2004 for the installation of a selective catalytic reduction system at the Asbury Plant to comply with nitrogen oxide emission standards set by the Missouri Department of Natural Resources. See "—Environmental Matters" below for more information.

        Estimated construction expenditures are reviewed and adjusted for, among other things, revised estimates of future capacity needs, the cost of funds necessary for construction and the availability and cost of alternative power. Actual construction expenditures may vary significantly from the estimates due to a number of factors including changes in equipment delivery schedules, changes in customer requirements, construction delays, ability to raise capital, environmental matters, the extent to which we receive timely and adequate rate increases, the extent of competition from independent power producers and co-generators, other changes in business conditions and changes in legislation and regulation, including those relating to the energy industry. See "—Regulation" below and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Competition."

Fuel

        Coal, generally considered the most cost-effective fuel for base-load generation, supplied approximately 70.2% of our total fuel requirements in 2001 based on kilowatt-hours generated. The remainder was supplied by natural gas (29.3%) with oil generation providing less than 1%. We expect that the amount and percentage of electricity generated by natural gas will increase due to the placing into commercial operation in June 2001 of the new combined cycle unit at the State Line Power Plant and the addition of an additional 50 megawatts of gas-fired generation in each of 2003 and 2004.

        Our Asbury Plant is fueled primarily by coal with oil being used as startup fuel. The Plant is currently burning a coal blend consisting of approximately 85% Western coal (Powder River Basin) and 15% blend coal on a tonnage basis. Our average coal inventory target at Asbury is approximately 60 days. As of December 31, 2001, we had sufficient coal on hand to supply anticipated requirements at Asbury for 100 days. This extra inventory was due to the extended fall outage at the plant and the coal contract commitments to purchase a minimum tonnage for the year.

        Our Riverton Plant fuel requirements are primarily met by coal with the remainder supplied by natural gas and oil. The Riverton Plant is currently burning 100% Western coal (Powder River Basin) on Unit No. 8 and a blend consisting of approximately 78% Western coal (Powder River Basin) and 22% blend coal on Unit No. 7 on a tonnage basis. Our average coal inventory target at Riverton is approximately 60 days. As of December 31, 2001, we had coal supplies on hand to meet anticipated requirements at the Riverton Plant for 60 days.

        We have a long-term contract, expiring in 2004, with a subsidiary of Peabody Holding Company, Inc. for the supply of low sulfur Western coal (Powder River Basin) at the Asbury and Riverton Plants during the term of the contract. This Peabody coal is supplied from the Rochelle/North Antelope mines located in Campbell County, Wyoming, and is shipped to the Asbury Plant by rail, a distance of approximately 800 miles. The coal is delivered under a transportation contract with Union Pacific Railroad Company and The Kansas City Southern Railway Company. We are currently leasing one 125-car aluminum unit train, which delivers Peabody coal to the Asbury Plant. The Peabody coal is transported from Asbury to Riverton via truck. Asbury blend coal is currently being supplied under a short-term contract, expiring December 31, 2002, with GENWAL Resources, Inc. This coal is supplied

7

from the Crandall Canyon mine near Huntington, Utah and is transported by rail by Burlington Northern and Santa Fe Railway Company and The Kansas City Southern Railway Company. This contract expires at the end of 2003. The Riverton Plant blend coal is supplied under a contract expiring December 31, 2002, with Phoenix Coal Sales. The Phoenix coal is transported to Riverton via truck.

        Unit No. 1 at the Iatan Plant is a coal-fired generating unit which is jointly-owned by Kansas City Power & Light (70%), St. Joseph Light & Power (a UtiliCorp subsidiary) (18%) and us (12%). Low sulfur Western coal in quantities sufficient to meet substantially all of Iatan's requirements is supplied under a long-term contract expiring on December 31, 2003, between the joint owners and the Thunder Basin Coal Company. Kansas City Power & Light is the operator of this plant and is responsible for arranging its fuel supply. The coal is transported by rail under a contract expiring on December 31, 2010, with the Burlington Northern and Santa Fe Railway Company and The Kansas City Southern Railway Company.

        Since 1995, our Energy Center and State Line combustion turbine facilities have been fueled primarily by natural gas with oil being used as a backup fuel. During 2001, the heat input at the Energy Center was 93% natural gas and 7% oil. The State Line heat input during 2001 was 100% natural gas. Our targeted oil inventory at the Energy Center facility permits eight days of full load operation. We currently have an oil inventory of approximately eight days of full load operation for State Line Unit No. 1.

        We have a firm agreement with Williams Natural Gas Company, expiring May 31, 2016, for the transportation of natural gas to the State Line Power Plant for State Line Unit No. 1 and the jointly-owned Combined Cycle Unit. This transportation agreement can also supply natural gas to the Energy Center or the Riverton Plant, as elected by us on a secondary basis. We expect that our remaining gas transportation requirements, as well as the majority of our natural gas supply requirements, will be met by short-term forward contracts and spot purchases.

        The following table sets forth a comparison of the costs, including transportation costs, per million btu of various types of fuels used in our facilities:

        Our weighted cost of fuel burned per kilowatt-hour generated was 2.048 cents in 2001, 1.846 cents in 2000 and 1.561 cents in 1999. See "Regulation—Fuel Adjustment Clauses" for information with respect to our recovery of fuel cost increases.

Employees

        At December 31, 2001, we had 616 full-time employees, of whom 328 were members of Local 1474 of The International Brotherhood of Electrical Workers. On January 17, 2000, we and the IBEW entered into a new three-year labor agreement effective November 1, 1999. The agreement provided, among other things, for a 3.25% increase in wages effective October 25, 1999, a 3.5% increase effective November 6, 2000 and an increase of 2.9% effective October 22, 2001. We expect to begin negotiations for a new union contract in late summer of 2002.

8

ELECTRIC OPERATING STATISTICS(1)

(1)

See Item 6—Selected Financial Data for additional financial information regarding Empire.

9

Executive Officers and Other Officers of Empire

        The names of our officers, their ages and years of service with Empire as of December 31, 2001, positions held and effective date of such positions are presented below. All of our officers, other than G. A. Knapp, B. P. Beecher and R. F. Gatz (whose biographical information is set forth below), have been employed by Empire for at least the last five years.

(1)

M. W. McKinney will retire from his position as President and Chief Executive Officer effective April 30, 2002 but will continue on the Board of Directors as Chairman of the Board.

(2)

W. L. Gipson will become President and Chief Executive Officer effective May 1, 2002 and has been nominated to the Board of Directors.

(3)

C. A. Stark will retire from his position as Vice-President—General Services effective June 30, 2002.

(4)

Effective March 15, 2002.

10

(5)

Effective March 15, 2002. G. A. Knapp was previously with Empire from 1978 to 2000 and held the position of Controller and Assistant Treasurer (1983). During the period from 2000 to 2002, Mr. Knapp served as Controller for the Missouri Department of Transportation.

(6)

B. P. Beecher was previously with Empire from 1988 to 1999 and held the positions of Director of Production Planning and Administration (1993) and Director of Strategic Planning (1995). During the period from 1999 to 2001, Mr. Beecher served as the Associate Director of Marketing and Strategic Planning for the Energy Engineering and Construction Division of Black & Veatch.

(7)

R. F. Gatz was previously with Hook Up, Inc. from 1999 to 2001 as Chief Administrative Officer and with Mercantile Bank in Joplin from 1985 to 1999 and held the positions of Executive Vice President, Senior Credit Officer, and Chief Financial Officer.

Regulation

        General.    As a public utility, we are subject to the jurisdiction of the Missouri Public Service Commission, the State Corporation Commission of the State of Kansas, the Corporation Commission of Oklahoma and the Arkansas Public Service Commission with respect to services and facilities, rates and charges, accounting, valuation of property, depreciation and various other matters. Each such Commission has jurisdiction over the creation of liens on property located in its state to secure bonds or other securities. The Kansas Commission also has jurisdiction over the issuance of securities. Our transmission and sale at wholesale of electric energy in interstate commerce and our facilities are also subject to the jurisdiction of the Federal Energy Regulatory Commission, referred to as FERC, under the Federal Power Act. FERC jurisdiction extends to, among other things, rates and charges in connection with such transmission and sale; the sale, lease or other disposition of such facilities and accounting matters. See discussion in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Competition."

        Our Ozark Beach Hydroelectric Plant is operated under a license from FERC. See Item 2, "Properties—Electric Facilities." We are disputing a Headwater Benefits Determination Report we received from FERC on September 9, 1991. The report calculates an assessment to us for headwater benefits received at the Ozark Beach Hydroelectric Plant for the period 1973 through 1990 in the amount of $705,724, and calculates an annual assessment thereafter of $42,914 for the years 1991 through 2011. We believe that the methodology used in making the assessment was incorrect and are contesting the determination. As of December 31, 2001, FERC had not responded to the comments filed by us on July 31, 1992. We are currently accruing an amount monthly equal to what we believe the correct assessment to be.

     &