Great Plains Energy’s and KCP&L’s long-term debt is detailed in the following table.
|
|
|
|
|
|
|
|
|
|
March 31
|
December 31
|
|
|
Year Due
|
2011
|
2010
|
|
KCP&L
|
|
(millions)
|
|
General Mortgage Bonds
|
|
|
|
|
|
|
4.90%* EIRR bonds
|
2012-2035
|
$
|
158.8
|
|
$
|
158.8
|
|
|
7.15% Series 2009A (8.59% rate**)
|
2019
|
|
400.0
|
|
|
400.0
|
|
|
4.65% EIRR Series 2005
|
2035
|
|
50.0
|
|
|
50.0
|
|
|
5.125% EIRR Series 2007A-1
|
2035
|
|
63.3
|
|
|
63.3
|
|
|
2.625% EIRR Series 2007A-2
|
2035
|
|
10.0
|
|
|
10.0
|
|
|
5.375% EIRR Series 2007B
|
2035
|
|
73.2
|
|
|
73.2
|
|
|
Senior Notes
|
|
|
|
|
|
|
|
|
6.50% Series
|
2011
|
|
150.0
|
|
|
150.0
|
|
|
5.85% Series (5.72% rate**)
|
2017
|
|
250.0
|
|
|
250.0
|
|
|
6.375% Series (7.49% rate**)
|
2018
|
|
350.0
|
|
|
350.0
|
|
|
6.05% Series (5.78% rate**)
|
2035
|
|
250.0
|
|
|
250.0
|
|
|
EIRR Bonds
|
|
|
|
|
|
|
|
|
4.90% Series 2008
|
2038
|
|
23.4
|
|
|
23.4
|
|
|
Other
|
2011-2018
|
|
3.3
|
|
|
3.3
|
|
|
Current maturities
|
|
|
(275.5
|
)
|
|
(150.3
|
)
|
|
Unamortized discount
|
|
|
(1.9
|
)
|
|
(2.0
|
)
|
|
Total KCP&L
|
|
|
1,504.6
|
|
|
1,629.7
|
|
|
|
|
|
|
|
|
|
|
|
Other Great Plains Energy
|
|
|
|
|
|
|
|
|
GMO First Mortgage Bonds
|
|
|
|
|
|
|
|
|
9.44% Series
|
2012-2021
|
|
11.2
|
|
|
12.4
|
|
|
GMO Pollution Control Bonds
|
|
|
|
|
|
|
|
|
5.85% SJLP Pollution Control
|
2013
|
|
5.6
|
|
|
5.6
|
|
|
0.262%*** Wamego Series 1996
|
2026
|
|
7.3
|
|
|
7.3
|
|
|
0.548%*** State Environmental 1993
|
2028
|
|
5.0
|
|
|
5.0
|
|
|
GMO Senior Notes
|
|
|
|
|
|
|
|
|
7.95% Series
|
|
|
-
|
|
|
137.3
|
|
|
7.75% Series
|
2011
|
|
197.0
|
|
|
197.0
|
|
|
11.875% Series
|
2012
|
|
500.0
|
|
|
500.0
|
|
|
8.27% Series
|
2021
|
|
80.9
|
|
|
80.9
|
|
|
Fair Value Adjustment
|
|
|
40.9
|
|
|
49.9
|
|
|
GMO Medium Term Notes
|
|
|
|
|
|
|
|
|
7.16% Series
|
2013
|
|
6.0
|
|
|
6.0
|
|
|
7.33% Series
|
2023
|
|
3.0
|
|
|
3.0
|
|
|
7.17% Series
|
2023
|
|
7.0
|
|
|
7.0
|
|
|
Great Plains Energy 2.75% Senior Notes (3.67% rate**)
|
2013
|
|
250.0
|
|
|
250.0
|
|
|
Great Plains Energy 6.875% Senior Notes (7.33% rate**)
|
2017
|
|
100.0
|
|
|
100.0
|
|
|
Great Plains Energy 10.00% Equity Units Subordinated Notes
|
2042
|
|
287.5
|
|
|
287.5
|
|
|
Current maturities
|
|
|
(198.1
|
)
|
|
(335.4
|
)
|
|
Unamortized discount
|
|
|
(0.5
|
)
|
|
(0.5
|
)
|
|
Total Great Plains Energy excluding current maturities
|
|
|
$
|
2,807.4
|
|
$
|
2,942.7
|
|
|
* Weighted-average interest rates at March 31, 2011
|
|
** Rate after amortizing gains/losses recognized in OCI on settlements of interest rate hedging instruments
|
|
*** Variable rate
|
Fair Value of Long-Term Debt
Fair value of long-term debt is based on quoted market prices, with the incremental borrowing rate for similar debt used to determine fair value if quoted market prices were not available. At March 31, 2011, and December 31, 2010, the book value of Great Plains Energy’s long-term debt, including current maturities, was $3.3 billion and $3.4 billion, respectively. At March 31, 2011, and December 31, 2010, the fair value of Great Plains Energy’s long-term debt, including current maturities, was $3.5 billion and $3.7 billion, respectively. At March 31, 2011, and December 31, 2010, the book value of KCP&L’s long-term debt, including current maturities, was $1.8 billion. At March 31, 2011, and December 31, 2010, the fair value of KCP&L’s long-term debt, including current maturities, was $1.9 billion.
KCP&L General Mortgage Bonds and EIRR Bonds
In April 2011, KCP&L purchased in lieu of redemption its $63.3 million EIRR Series 2007A-1, $10.0 million EIRR Series 2007A-2 and $39.5 million EIRR Series 1993B bonds. KCP&L opted to purchase rather than remarket the bonds given the poor conditions in the tax-exempt market. The bonds were reported as current maturities of long-term debt on Great Plains Energy’s and KCP&L’s balance sheets at March 31, 2011. KCP&L issued commercial paper to fund the purchase of the bonds.
As of April 2011, the bonds were still outstanding, but will not be reported as a liability on the balance sheet since they are being held by KCP&L. KCP&L has the ability to remarket these bonds to third parties whenever it determines market conditions are sufficiently attractive to do so.
GMO Senior Notes
In February 2011, GMO repaid its $137.3 million 7.95% Senior Notes that matured in February 2011 with borrowings from its short-term revolving credit facility.
|
10.
|
COMMITMENTS AND CONTINGENCIES
|
Environmental Matters
Great Plains Energy and KCP&L are subject to extensive regulation by federal, state and local authorities with regard to environmental matters primarily through their utility operations. In addition to imposing extensive and continuing compliance obligations, 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 adverse effect on Great Plains Energy’s and KCP&L’s results of operations, financial position and cash flows.
The following discussion groups environmental and certain associated matters into the broad categories of air and climate change, water, solid waste and remediation.
Air and Climate Change
The Clean Air Act and associated regulations enacted by the Environmental Protection Agency (EPA) form a comprehensive program to preserve 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.
Great Plains Energy’s and KCP&L’s current estimate of capital expenditures (exclusive of AFUDC and property taxes) to comply with the currently effective Clean Air Interstate Rule (CAIR), the best available retrofit technology (BART) rule and the industrial boiler rule (discussed below) is approximately $1 billion.
As discussed below, CAIR has been remanded to the EPA, but remains in effect until the EPA issues final rules consistent with the court’s order or until the court takes further action. In July 2010, the EPA proposed the
Transport Rule to replace CAIR. In March 2011, the EPA proposed maximum achievable control technology (MACT) standards for mercury and other hazardous air pollutant emissions. While the Companies cannot reasonably predict at this time the impacts of final rules, if the rules were finalized as currently proposed, the Companies expect that any required capital expenditures to comply with the Transport Rule, BART, the industrial boiler rule and MACT standards for mercury and other hazardous air pollutant emissions would be within the approximate $1 billion estimate of capital expenditures (exclusive of AFUDC and property taxes) to comply with the currently effective CAIR, BART and industrial boiler rule. However, due to uncertainties regarding the proposed rules (discussed below), it is not possible to predict what the final rules may be, when the rules may be issued, or the costs associated with such final rules. The actual cost of compliance with any future rules, and with BART, may be significantly different from the cost estimate provided.
The potential capital costs of the Collaboration Agreement provisions (discussed below) relating to NO
x
, SO
2
and particulate emission limits at the LaCygne generating station are within the disclosed overall capital cost estimate of approximately $1 billion (discussed above). However, the estimated capital costs do not reflect potential costs relating to requirements enacted in the future, including potential requirements regarding climate change (discussed below), and also do not reflect costs relating to additional wind generation, energy efficiency and other CO
2
emission offsets contemplated by the Collaboration Agreement or that may be required under the Missouri or Kansas renewable energy standards, which are discussed below. The estimate does not reflect the non-capital costs the Companies incur on an ongoing basis to comply with environmental laws, which may increase in the future due to the Companies’ ongoing compliance with current or future environmental laws. KCP&L expects to seek recovery of the costs associated with the Collaboration Agreement and 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 pressures and/or public perception of the Companies’ environmental reputation.
Clean Air Interstate Rule (CAIR) and Transport Rule
The CAIR requires reductions in SO
2
and NO
x
emissions in 28 states, including Missouri. The reduction in both SO
2
and NO
x
emissions is accomplished through statewide caps for NO
x
and SO
2
. More restrictive caps are scheduled to become effective January 1, 2015. Great Plains Energy’s and KCP&L’s fossil fuel-fired plants located in Missouri are subject to CAIR, while their fossil fuel-fired plants in Kansas are not.
On July 11, 2008, the D.C. Circuit Court of Appeals vacated CAIR in its entirety and remanded the matter to the EPA to promulgate a new rule consistent with its opinion. On December 23, 2008, the Court issued an order remanding CAIR to the EPA to revise the rule consistent with its July 2008 order. The CAIR thus remains in effect pending future EPA or court action, including the proposed Transport Rule discussed below.
CAIR currently establishes a market-based cap-and-trade program with an emission allowance allocation. Facilities demonstrate compliance with CAIR by holding sufficient allowances for each ton of SO
2
and NO
x
emitted in any given year. KCP&L and GMO are currently allowed to utilize unused SO
2
emission allowances that they have either accumulated during previous years of the Acid Rain Program or purchased to meet the more stringent CAIR requirements. At March 31, 2011, KCP&L had accumulated unused SO
2
emission allowances sufficient to support over 150,000 tons of SO
2
emissions (enough to support expected requirements under the current CAIR for the foreseeable future) under the provisions of the Acid Rain program, which are recorded in inventory at zero cost. At March 31, 2011, GMO had accumulated unused SO
2
emission allowances sufficient to support just over 16,000 tons of SO
2
emissions (enough to support expected requirements under the current CAIR through 2011), which it has received under the Acid Rain Program or purchased, and are recorded in inventory at average cost. KCP&L and GMO purchase NO
x
allowances as needed.
Analysis of the current CAIR rule indicates that NO
x
and SO
2
control may be required for KCP&L’s Montrose Station and GMO’s Sibley and Lake Road Stations in Missouri, and control may be achieved through a combination of pollution control equipment and the use or purchase of emission allowances as needed.
In July 2010, the EPA proposed the Transport Rule to replace the current CAIR. The Transport Rule, like CAIR, will require the states within its scope to reduce power plant SO
2
and NO
x
emissions that contribute to ozone and fine particle nonattainment in other states. The geographical scope of the Transport Rule is broader than CAIR, and includes Kansas in addition to Missouri and other states. The Transport Rule would also impose more stringent emissions limitations than CAIR and, unlike CAIR, would not utilize Acid Rain Program allowances for compliance. The EPA is proposing a preferred approach and is taking comment on two alternatives. In the EPA’s preferred approach, the EPA would set an emissions budget for each of the affected states and the District of Columbia. The preferred approach would allow limited interstate emissions allowance trading among power plants; however, it would not permit trading of SO
2
allowances between the Companies’ Kansas and Missouri power plants. In the first alternative, the EPA is proposing to set an emissions budget for each state and allow emissions allowance trading only among power plants within a state. In the second alternative, the EPA is proposing to set an emissions budget for each state, specify the allowable emission limit for each power plant and allow some averaging. Compliance with the Transport Rule would begin in 2012. There would be additional reductions in SO
2
allowances allocable to the Companies’ Missouri power plants taking effect in 2014 pursuant to the preferred approach. There is no such additional reduction in SO
2
allowances allocable to the Companies’ Kansas power plants.
The proposed Transport Rule is complex and, as noted, contains alternative approaches. Great Plains Energy and KCP&L are unable to predict when the Transport Rule (or other rule replacing CAIR) might be adopted, or the actual requirements of such rule. Preliminary analysis of the Transport Rule has raised various questions regarding the emission allowances allocation to, and the allowable emission rates for, the Companies’ power plants pursuant to the preferred approach and alternatives, which the Companies addressed during the rule’s comment period. Regardless of the resolution of those questions, the Companies project that they may not be allocated sufficient SO
2
or NO
X
emissions allowances to cover their currently expected operations starting in 2012 pursuant to the preferred approach. Any shortfall in allocated allowances would need to be addressed through permissible allowance trading, installing additional emission control equipment, changes in plant operation, purchasing additional power in the wholesale market, or a combination of these and other alternatives. Any final rule could have a significant adverse effect on Great Plains Energy’s and KCP&L’s results of operations, financial position and cash flows.
Best Available Retrofit Technology (BART) Rule
The EPA BART rule directs state air quality agencies to identify whether visibility-reducing emissions from sources subject to BART are below limits set by the state or whether retrofit measures are needed to reduce emissions. BART applies to specific eligible facilities including KCP&L’s LaCygne Nos. 1 and 2 in Kansas, KCP&L’s Iatan No. 1, in which GMO has an 18% interest, KCP&L’s Montrose No. 3 in Missouri, GMO’s Sibley Unit No. 3 and Lake Road Unit No. 6 in Missouri and Westar Energy, Inc.’s (Westar) Jeffrey Unit Nos. 1 and 2 in Kansas, in which GMO has an 8% interest. Initially, in Missouri, compliance with CAIR will be compliance with BART for individual sources. Both Missouri and Kansas have submitted BART plans to the EPA but neither Missouri nor Kansas has received EPA approval for their BART plans.
Mercury and Other Hazardous Air Pollutant Emissions
In January 2009, the EPA issued a memorandum stating that new electric steam generating units (EGUs) that began construction while the Clean Air Mercury Rule (CAMR) was effective are subject to a new source maximum achievable control technology (MACT) determination on a case-by-case basis.
In July 2009, the EPA sent letters notifying KCP&L that MACT determinations and schedules of compliance are required for coal and oil-fired EGUs that began actual construction or reconstruction after December 15, 2000, and identified Iatan No. 2 and Hawthorn No. 5 as affected EGUs. This was an outcome of the D.C. Court of Appeals’ vacatur of both the CAMR and the contemporaneously promulgated rule removing EGUs from MACT requirements. KCP&L believes that Hawthorn No. 5 is not an affected EGU based on the reconstruction dates of the unit, and provided supporting documentation to the Missouri Department of Natural Resources (MDNR). It is not currently known how MACT determinations and schedules of compliance will impact the permitting or operating requirements for these two units, but it is possible a MACT determination may ultimately require additional emission control equipment and permit limits at Iatan No. 2, Hawthorn No. 5, or both.
In April 2010, the EPA, in a court approved settlement, agreed to develop MACT standards for mercury and potentially other hazardous air pollutant emissions. In the settlement agreement, the EPA agreed to propose MACT standards in March 2011 with final standards by November 2011. In March 2011, the EPA issued a proposed rule that would reduce emissions of hazardous air pollutants from new and existing coal-fired EGUs with a capacity of 25MW or greater. The proposed rule would establish numerical emission limits for mercury, particulate matter (a surrogate for non-mercury metals), and hydrogen chloride (a surrogate for acid gases). The proposed rule would establish work practices, instead of numerical emission limits, for organic hazardous air pollutants, including dioxin/furan. Compliance with the rule would need to be addressed by installing additional emission control equipment, changes in plant operation, purchasing additional power in the wholesale market or a combination of these and other alternatives. Any final rule could have a significant adverse effect on Great Plains Energy’s and KCP&L’s results of operations, financial position and cash flows.
Industrial Boiler Rule
In February 2011, 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, dioxin, 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 EPA also announced it will allow an administrative reconsideration of the final rule seeking additional comment. The final rule establishes emission limits for KCP&L’s and GMO’s new and 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.
New Source Review
The Clean Air Act requires companies to obtain permits and, if necessary, install control equipment to reduce emissions when making a major modification or a change in operation if either is expected to cause a significant net increase in regulated emissions.
In January 2004, Westar received notification from the EPA alleging that it had violated new source review requirements and Kansas environmental regulations by making modifications to the Jeffrey Energy Center without obtaining the proper permits. In February 2009, the Attorney General of the United States filed a complaint against Westar alleging that it violated the Clean Air Act and related federal and state regulations by making major modifications to the Jeffrey Energy Center beginning in 1994 without first obtaining appropriate permits authorizing this construction and without installing and
operating best available control technology to control emissions. The Jeffrey Energy Center consists of three coal-fired units located in Kansas that is 92% owned by Westar and operated exclusively by Westar. GMO has an 8% interest in the Jeffrey Energy Center and is generally responsible for its 8% share of the facility’s operating costs and capital expenditures. In January 2010, Westar entered into a settlement agreement, which was approved by the court in March 2010. The settlement agreement requires, among other things, the installation of a selective catalytic reduction (SCR) system at one of the Jeffrey Energy Center units by the end of 2014 and the payment of a $3 million civil penalty. Westar has preliminarily estimated the cost of this SCR at approximately $240 million. This amount could materially change depending on final engineering and design. Depending on the NO
x
emission reductions attained by that SCR and attainable through the installation of other controls at the other two units, the settlement agreement may require the installation of a second SCR system on one of the other two units by the end of 2016. There is no assurance that GMO’s share of these costs would be recovered in rates and failure to recover such costs could have a significant adverse effect on Great Plains Energy’s results of operations, financial position and cash flows.
KCP&L
has
received
requests
for information from the Kansas Department of Health and Environment (KDHE) pertaining to a past LaCygne No.
1
scrubber project. KCP&L is working with the KDHE to resolve this issue and management currently believes the outcome will not have a significant impact to Great Plains Energy’s and KCP&L’s results of operations, financial position and cash flows.
Collaboration Agreement
In March 2007, KCP&L, the Sierra Club and the Concerned Citizens of Platte County entered into a Collaboration Agreement under which KCP&L agreed to pursue a set of initiatives including energy efficiency, additional wind generation, lower emission permit levels at its Iatan and LaCygne generating stations and other initiatives designed to offset CO
2
emissions. Full implementation of the terms of the Collaboration Agreement will necessitate approval from the appropriate authorities, as some of the initiatives in the agreement require regulatory approval.
In 2006, KCP&L installed 100MW of wind generation at its Spearville wind site. KCP&L agreed in the Collaboration Agreement to pursue increasing its wind generation capacity to 500MW in total by the end of 2012 with 100MW to be added by the end of 2010 and the remainder added by the end of 2012, subject to regulatory approval. In 2010, KCP&L completed a 48MW wind project adjacent to its existing Spearville wind site with wind turbines it already owned and also secured 52MW of renewable energy credits. During 2011, KCP&L entered into a 20-year power purchase agreement for approximately 132MW of wind generation beginning in 2012. KCP&L is evaluating alternatives to meet the remaining wind generation capacity requirement, including the purchase of renewable energy credits, power purchase agreements, KCP&L-built installations or some combination thereof.
KCP&L agreed in the Collaboration Agreement to seek a consent agreement, which it has done, with the KDHE incorporating limits for stack particulate matter emissions, as well as limits for NO
x
and SO
2
emissions at its LaCygne Station that will be below the presumptive limits under BART. KCP&L further agreed to use its best efforts to install emission control technologies to reduce those emissions from the LaCygne Station prior to the required compliance date under BART, but in no event later than June 1, 2015. KCP&L has issued requests for proposals for environmental equipment required to comply with BART at the LaCygne Station and is evaluating the responses. In February 2011, KCP&L filed a request with KCC for predetermination of the ratemaking treatment that will apply to the recovery of costs for its 50% share of the environmental equipment required to comply with BART at the LaCygne Station. The request for predetermination includes an estimated total project cost of $1.23 billion. KCP&L’s 50% share of the estimated cost is $615 million. A KCC decision on the predetermination filing is expected in August 2011. In a related proceeding, in January 2011, KCC opened a general investigation docket regarding KCP&L and Westar environmental retrofits upon the recommendation of the KCC Staff and the
Citizens Utility Ratepayers
Boar
d. T
he
Companies cannot predict the outcome or timing of this matter but the outcome could have the potential to impact the Companies’ resource planning in the future.
In the Collaboration Agreement, KCP&L also agreed to offset an additional 711,000 tons of CO
2
by the end of 2012. KCP&L currently expects to achieve this offset through a number of alternatives, including improving the efficiency of its coal-fired units, equipping certain gas-fired units for winter operation and, if necessary, possibly reducing output of, or retiring, one or more coal-fired units.
Climate Change
The Companies are subject to existing greenhouse gas reporting regulations and, as discussed below, are subject to certain greenhouse gas permitting requirements starting in 2011. Management believes it is likely that additional federal or relevant state or local laws or regulations could be enacted to address global climate change. At the international level, while the United States is not a current party to the Kyoto Protocol, it has agreed to undertake certain voluntary actions under the non-binding Copenhagen Accord and pursuant to subsequent international discussions relating to climate change, including the establishment of a goal to reduce greenhouse gas emissions. International agreements legally binding on the United States may be reached in the future. Such new laws or regulations could mandate new or increased requirements to control or reduce the emission of greenhouse gases, such as CO
2
, which are created in the combustion of fossil fuels. The Companies’ current generation capacity is primarily coal-fired and is estimated to produce about one ton of CO
2
per MWh, or approximately 23 million tons and 17 million tons per year for Great Plains Energy and KCP&L, respectively.
Laws have recently been passed in Missouri and Kansas, the states in which the Companies’ retail electric businesses are operated, setting renewable energy standards, and management believes that national clean or renewable energy standards are also likely. While management believes additional requirements addressing these matters will probably be enacted, the timing, provisions and impact of such requirements, including the cost to obtain and install new equipment to achieve compliance, cannot be reasonably estimated at this time. In addition, certain federal courts have held that state and local governments and private parties have standing to bring climate change tort suits seeking company-specific emission reductions and monetary or other damages. The U.S. Supreme Court has heard arguments and is expected to rule on an appeal of one of those suits. While the Companies are not a party to any climate change tort suit, there is no assurance that such suits may not be filed in the future or the outcome if such suits are filed. Such requirements or litigation outcomes could have the potential for a significant financial and operational impact on Great Plains Energy and KCP&L. The Companies would seek recovery of capital costs and expenses for compliance through rate increases; however, there can be no assurance that such rate increases would be granted.
Legislation concerning the reduction of emissions of greenhouse gases, including CO
2
,
is being considered at the federal and state levels. The timing and effects of any such legislation cannot be determined at this time. In the absence of new Congressional mandates, the EPA is proceeding with the regulation of greenhouse gases under the existing Clean Air Act.
In May 2010, the EPA issued a final rule addressing greenhouse gas emissions from stationary sources under the Clean Air Act permitting programs. This final rule sets thresholds for greenhouse gas emissions that define when permits under the Prevention of Significant Deterioration (PSD) and Title V Operating Permit programs are required for new and existing industrial facilities. The EPA phased in the Clean Air Act permitting requirements for greenhouse gas emissions in two initial steps. In step 1, which started January 2, 2011, only sources currently subject to the PSD permitting program (i.e., those that are newly-constructed or modified in a way that significantly increases emissions of a pollutant other than greenhouse gas) are subject to Title V or PSD permitting requirements, respectively, for their greenhouse gas emissions. For these projects, only projects with new or increases of greenhouse gas emissions of
75,000 tons per year or more of total greenhouse gases, on a CO
2
equivalent basis, need to determine the best available control technology for their greenhouse gas emissions. In addition, sources subject to the Title V Operating Permit Program need to address greenhouse gas emissions as those permits are applied for or renewed. In step 2, starting July 1, 2011, Title V and PSD permitting requirements will cover, for the first time, new construction projects that emit greenhouse gas emissions of at least 100,000 tons per year even if they do not exceed the permitting thresholds for any other pollutant. In addition, modifications at such existing facilities that increase greenhouse gas emissions by at least 75,000 tons per year will be subject to permitting requirements, even if they do not significantly increase emissions of any other pollutant. Great Plains Energy’s and KCP&L’s generating facilities that trigger these thresholds for new installations, modifications or Title V operating permits will be subject to this rule.
In March 2011, the EPA announced it finalized a settlement agreement to issue a rule that will address greenhouse gas emissions from EGUs. The rule would establish new source performance standards for new and modified EGUs and emission guidelines for existing EGUs. Under the settlement agreement, the EPA committed to issuing proposed regulations by July 2011, and final regulations by May 2012.
At the state level, a Kansas law enacted in May 2009 requires Kansas public electric utilities, including KCP&L, to have renewable energy generation capacity equal to at least 10% of their three-year average Kansas peak retail demand by 2011. The percentage increases to 15% by 2016 and 20% by 2020. A Missouri law enacted in November 2008 requires at least 2% of the electricity provided by Missouri investor-owned utilities (including KCP&L and GMO) to their Missouri retail customers to come from renewable resources, including wind, solar, biomass and hydropower, by 2011, increasing to 5% in 2014, 10% in 2018, and 15% in 2021, with a small portion (estimated to be about 2MW in 2011 for each of KCP&L and GMO) required to come from solar resources.
KCP&L and GMO project that their current renewable resources (including accumulated renewable energy credits) will be sufficient for compliance with the Missouri requirements, exclusive of the solar requirement, through 2021 and 2015, respectively. KCP&L and GMO project that the purchase of solar renewable energy credits will be sufficient for compliance with the Missouri requirements through 2011. The Companies have issued requests for proposals for compliance with the solar requirement beyond 2011 and are evaluating the proposals. KCP&L and GMO continue to evaluate options for compliance beyond these years.
KCP&L also projects that its current renewable resources (including accumulated renewable energy credits) combined with the 48MW wind project and 52MW of renewable energy credits discussed above will be sufficient for compliance with the 2011 Kansas requirements. During 2011, KCP&L entered into a 20-year power purchase agreement for approximately 132 MW of wind generation beginning in 2012. With this PPA, KCP&L anticipates its renewable resources will be sufficient for compliance with the Kansas requirements in 2012.
Additionally, in November 2007, governors from six Midwestern states, including Kansas, signed the Midwestern Greenhouse Gas Reduction Accord, which has established the goal of reducing member states’ greenhouse gas emissions to 15% to 20% below 2005 levels by 2020, and 60% to 80% below 2005 levels by 2050.
Greenhouse gas legislation or regulation has the potential of having significant financial and operational impacts on Great Plains Energy and KCP&L, including the potential costs and impacts of achieving compliance with limits that may be established. However, the ultimate financial and operational consequences to Great Plains Energy and KCP&L cannot be determined until such legislation is passed and/or regulations are issued. Management will continue to monitor the progress of relevant legislation and regulations.
Ozone NAAQS
In June 2007, monitor data indicated that the Kansas City area violated the 1997 primary eight-hour ozone national ambient air quality standard (NAAQS). Missouri and Kansas have implemented the responses established in the maintenance plans for control of ozone. The responses in both states do not require additional controls at Great Plains Energy’s and KCP&L’s generation facilities beyond the currently proposed controls for CAIR and BART. The EPA has various options over and above the implementation of the maintenance plans for control of ozone to address the violation but has not yet acted. At this time, management is unable to predict how the EPA will respond or how that response will impact Great Plains Energy’s and KCP&L’s operations. However, the EPA’s response could have a significant effect on Great Plains Energy's and KCP&L's results of operations, financial position and cash flows.
In March 2008, the EPA significantly strengthened its NAAQS for ground-level ozone. The EPA revised the primary eight-hour ozone standard, designed to protect public health, to a level of 0.075 parts per million (ppm). The EPA also strengthened the secondary eight-hour ozone standard to the level of 0.075 ppm making it identical to the revised primary standard. The previous primary and secondary standards, set in 1997, were effectively 0.084 ppm.
In March 2009, the MDNR and KDHE submitted to the EPA their determinations that the Kansas City area is a nonattainment area under the 2008 primary eight-hour ozone standard. The EPA will make final designations of attainment and nonattainment areas. By 2013, states must submit state implementation plans outlining how states will reduce ozone to meet the standards in nonattainment areas. Although the impact on Great Plains Energy’s and KCP&L’s operations will not be known until after the final nonattainment designations and the state implementation plans are submitted, it could have a significant effect on Great Plains Energy’s and KCP&L’s results of operations, financial position and cash flows.
In January 2010, the EPA proposed to reconsider and further strengthen the 2008 NAAQS for ground-level ozone. The EPA proposed to strengthen the primary eight-hour ozone standard to a level within the range of 0.060-0.070 ppm. The EPA also proposed to establish a distinct cumulative, seasonal secondary standard, designed to protect sensitive vegetation and ecosystems, to within the range of 7-15 ppm-hours. In December 2010, the EPA filed a motion requesting court approval for additional time, until July 2011, to finalize the rule.
SO
2
NAAQS
In June 2010, the EPA strengthened the primary NAAQS for SO
2
. The EPA revised the primary SO
2
standard by establishing a new 1-hour standard at a level of 0.075 ppm. The EPA revoked the two existing primary standards of 0.140 ppm evaluated over 24-hours and 0.030 ppm evaluated over an entire year. Although the impact on Great Plains Energy’s and KCP&L’s operations will not be known until after the nonattainment designations are approved and the state implementation plans are submitted, it could have a significant effect on Great Plains Energy’s and KCP&L’s results of operations, financial position and cash flows.
Montrose Station Notice of Violation
In June 2009, KCP&L received notification from the MDNR alleging that its Montrose Station had excess particulate matter emissions in 2008. KCP&L is working with the MDNR to resolve this issue and management believes the outcome will not have a significant impact to Great Plains Energy’s and KCP&L’s results of operations, financial position and cash flows.
Water
The Clean Water Act and associated regulations enacted by the EPA form a comprehensive program to 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 March 2011, the EPA proposed 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 would be subject to a limit on how many fish can be killed by being pinned against intake screens (impingement) and would be required to conduct studies to determine whether and what site-specific controls, if any, would be required to reduce the number of aquatic organisms drawn into cooling water systems (entrainment). The EPA agreed to finalize the rule by July 2012. Although the impact on Great Plains Energy’s and KCP&L’s operations will not be known until after the rule is finalized, it could have a significant effect on Great Plains Energy’s and KCP&L’s results of operations, financial position and cash flows.
KCP&L holds a permit from the 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. KCP&L cannot predict the outcome of this matter; however, while less significant outcomes are possible, this matter may require KCP&L to reduce its generation at Hawthorn Station, install cooling towers or both, any of which could have a significant impact on KCP&L. The outcome could also affect the terms of water permit renewals at KCP&L’s Iatan Station and at GMO’s Sibley and Lake Road Stations.
Additionally, in September 2009, the EPA announced plans to revise the existing standards for water discharges from coal-fired power plants. In November 2010, the EPA filed a motion requesting court approval of a consent agreement in which the EPA agreed to propose a rule in July 2012 and to finalize it in January 2014. Until a rule is proposed and finalized, the financial and operational impacts to Great Plains Energy and KCP&L cannot be determined.
Solid Waste
Solid and hazardous waste generation, storage, transportation, treatment and disposal is regulated at the federal and state levels under various laws and regulations. In May 2010, the EPA proposed to regulate coal combustion residuals (CCRs) under the Resource Conservation and Recovery Act (RCRA) to address the risks from the disposal of CCRs generated from the combustion of coal at electric generating facilities. The EPA is considering two options in this proposal. Under the first proposal, the EPA would regulate CCRs as special wastes subject to regulation under subtitle C of RCRA (hazardous), when they are destined for disposal in landfills or surface impoundments. Under the second proposal, the EPA would regulate disposal of CCRs under subtitle D of RCRA (non-hazardous). The Companies principally use coal in generating electricity and dispose of the CCRs in both on-site facilities and facilities owned by third parties. The proposed CCR rule has the potential of having a significant financial and operational impact on Great Plains Energy and KCP&L in connection with achieving compliance with the proposed requirements. However, the financial and operational consequences to Great Plains Energy and KCP&L cannot be determined until an option is selected by the EPA and the final regulation is enacted.
Remediation
Certain federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) hold current and previous owners or operators of real property, and any person who arranges for the disposal or treatment of hazardous substances at a property, liable on a joint and several basis for the costs of cleaning up contamination at or migrating from such real property, even if they did not know of and were not responsible for such contamination. 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 is named as a potentially responsible party at two disposal sites for polychlorinated biphenyls (PCBs), and 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 March 31, 2011, and December 31, 2010, KCP&L had $0.3 million accrued for environmental remediation expenses, which covers ground water monitoring at a former MGP site. At March 31, 2011, and December 31, 2010, Great Plains Energy had $0.4 million accrued for environmental remediation expenses, which includes the $0.3 million at KCP&L, and additional potential remediation and ground water monitoring costs relating to two GMO sites. The amounts accrued were established on an undiscounted basis and Great Plains Energy and KCP&L do not currently have an estimated time frame over which the accrued amounts may be paid.
In addition to the $0.4 million accrual above, at March 31, 2011, and December 31, 2010, Great Plains Energy had $2.1 million accrued for the future investigation and remediation of certain additional GMO identified MGP sites, PCB 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.
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 $2.3 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.
In January 2010, the EPA announced an advance notice of proposed rulemaking under CERCLA identifying classes of facilities for which the EPA will develop financial assurance requirements, including the electric power generation, transmission and distribution industry. The CERCLA financial assurance would be for risks associated with Great Plains Energy’s and KCP&L’s production, transportation, treatment, storage or disposal of CERCLA hazardous substances. The impact on Great Plains Energy and KCP&L cannot be determined until the regulations are finalized.
In April 2010, the EPA announced an advance notice of proposed rulemaking for the use and distribution in commerce of certain PCBs, PCB items and certain other areas of the PCB regulations. The EPA is reassessing the use, distribution in commerce, marking, and storage for reuse of liquid PCBs in electric and non-electric equipment and the use of the 50 ppm level for excluded PCB products among other things. The impact on Great Plains Energy and KCP&L cannot be determined until the regulations are finalized.
