Great Plains Energy, a Missouri corporation incorporated in 2001 and headquartered in Kansas City, Missouri, 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 operations or active subsidiaries 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 (Receivables Company).
KCP&L Greater Missouri Operations Company (GMO) is an integrated, regulated electric utility that primarily 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 wholly owns MPS Merchant Services, Inc. (MPS Merchant), which has certain long-term natural gas contracts remaining from its former non-regulated trading operations.
Great Plains Energy Services Incorporated (Services) obtains certain goods and third-party services for its affiliated companies.
KLT Inc. is an intermediate holding company that primarily holds investments in affordable housing limited partnerships.
Great Plains Energy’s sole reportable business segment is electric utility. For information regarding the revenues, income and assets attributable to the electric utility business segment, see Note 23 to the consolidated financial statements. Comparative financial information and discussion regarding the electric utility business segment can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
The electric utility segment consists of KCP&L, a regulated utility, and, since the July 14, 2008, acquisition date of GMO, GMO’s regulated utility operations which include its Missouri Public Service and St. Joseph Light & Power divisions. Electric utility serves over 820,000 customers located in western Missouri and eastern Kansas. Customers include approximately 724,000 residences, 95,000 commercial firms, and 2,300 industrials, municipalities and other electric utilities. Electric utility’s retail revenues averaged approximately 85% of its total operating revenues over the last three years. Wholesale firm power, bulk power sales and miscellaneous electric revenues accounted for the remainder of electric utility’s revenues. Electric utility is significantly impacted by seasonality with approximately one-third of its retail revenues recorded in the third quarter. Electric utility’s total electric revenues were 100% of Great Plains Energy’s revenues over the last three years. Electric utility’s net income accounted for approximately 104%, 119% and 130% of Great Plains Energy’s income from continuing operations in 2009, 2008 and 2007, respectively.
Electric utility has over 6,000 MWs of generating capacity. The projected peak summer demand for 2010 is 5,515 MW. Electric utility expects to meet its projected capacity requirements through 2018 with its generation assets, capacity purchases and demand-side management and efficiency programs. As part of KCP&L’s Comprehensive Energy Plan, electric utility expects to have Iatan No. 2, a coal-fired plant, in service in the fall of 2010, which will add approximately 620 MW (electric utility’s share) to electric utility’s generating capacity.
KCP&L and GMO are members of the SPP. SPP is a Regional Transmission Organization (RTO) mandated by FERC to ensure reliable supply of power, adequate transmission infrastructure and competitive wholesale prices of electricity. As members of the SPP, KCP&L and GMO are required to maintain a capacity margin of at least 12% of their projected peak summer demand. This net positive supply of capacity and energy is maintained through their generation assets and capacity, power purchase agreements and peak demand reduction programs. The capacity margin is designed to ensure the reliability of electric energy in the SPP region in the event of operational failure of power generating units utilized by the members of the SPP.
The principal fuel sources for electric utility’s electric generation are coal and nuclear fuel. It is expected, with normal weather, that approximately 97% of 2010 generation will come from these sources with the remainder provided by wind, natural gas and oil. The actual 2009 and estimated 2010 fuel mix and delivered cost in cents per net kWh generated are in the following table.
GMO’s retail rates and KCP&L’s retail rates in Kansas contain certain fuel recovery mechanisms. KCP&L’s Missouri retail rates do not contain a fuel recovery mechanism. To the extent the price of fuel or purchased power increases significantly, or if electric utility’s lower cost units do not meet anticipated availability levels, Great Plains Energy’s net income may be adversely affected unless and until the increased cost could be reflected in KCP&L’s Missouri retail rates.
During 2010, electric utility’s generating units, including jointly owned units, are projected to burn approximately 17 million tons of coal. KCP&L and GMO have entered into coal-purchase contracts with various suppliers in Wyoming's Powder River Basin (PRB), the nation's principal supply region of low-sulfur coal, and with local suppliers. The coal to be provided under these contracts will satisfy approximately 90% of the projected coal requirements for 2010 and approximately 55% for 2011, 40% for 2012, 35% for 2013 and 25% for 2014. The remainder of the coal requirements will be fulfilled through additional contracts or spot market purchases. KCP&L and GMO have entered into coal contracts over time at higher average prices affecting coal costs for 2010 and beyond.
KCP&L and GMO have also entered into rail transportation contracts with various railroads to transport coal from the PRB to their generating units. The transportation services to be provided under these contracts will satisfy approximately 70% of the projected requirements for 2010. The remainder of coal transportation is under tariff rates. The majority of KCP&L’s and GMO’s rail transportation contracts expire in 2010. After 2010, rail transportation costs are anticipated to be significantly higher.
KCP&L owns 47% of Wolf Creek Nuclear Operating Corporation (WCNOC), the operating company for Wolf Creek, which is electric utility’s only nuclear generating unit. Wolf Creek purchases uranium and has it processed for use as fuel in its reactor. This process involves conversion of uranium concentrates to uranium hexafluoride, enrichment of uranium hexafluoride and fabrication of nuclear fuel assemblies. The owners of Wolf Creek have on hand or under contract all of the uranium and conversion services needed to operate Wolf Creek through March 2014 and approximately 80% after that date through September 2018. The owners also have under contract 100% of the uranium enrichment and fabrication required to operate Wolf Creek through March 2026.
Management anticipates the cost of nuclear fuel to increase significantly in 2010, after which increases are expected to be moderate. Even with this anticipated increase, management expects nuclear fuel cost per MWh generated to remain less than the cost of generation from other fuel sources. See Note 6 to the consolidated financial statements for additional information regarding nuclear plant.
At December 31, 2009, KCP&L had hedged approximately 68% and 11% of its 2010 and 2011, respectively, projected natural gas usage for generation requirements to serve retail load and firm MWh sales. At December 31, 2009, GMO had hedged approximately 55% and 3% of its 2010 and 2011, respectively, expected on-peak natural gas usage and natural gas equivalent purchased power.