**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

| **(Mark One)** |
|----------------|
| ** **     |
| **x**          | ** ** | **Quarterly report pursuant to Section 13 or 15(d)  of the Securities Exchange Act of 1934** |
| ** **     | ** ** | ** ** |
| ** **     | ** ** | **For the quarterly period ended June 30, 2007 or** |
| ** **     | ** ** | ** ** |
| **o**          | ** ** | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934** |
| ** **     | ** ** | ** ** |
| ** **     | ** ** | **For the transition period from                to                .** |

 

**Commission file number:**  **1-3368**

**THEEMPIRE DISTRICT ELECTRIC COMPANY**

(Exact name of registrant as specified in its charter)

| **Kansas**                                | ** ** | **44-0236370**                        |
|-------------------------------------------|------------|---------------------------------------|
| (State of  Incorporation)                 |       | (I.R.S. Employer  Identification No.) |
|                                      |       |                                  |
| **602  Joplin Street, Joplin, Missouri**  | ** ** | **64801**                             |
| (Address of  principal executive offices) |       | (zip code)                            |

 

Registrant’s telephone number:  **(417)625-5100**

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by checkmark if the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Act. (Check one):
| Large accelerated  filer  o |   | Accelerated  filer  x |   | Non-accelerated filer  o |
|---------------------------------------|--------|---------------------------------|--------|------------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  oNo  x

As of August 1, 2007, 30,472,183 shares of commonstock were outstanding.

 

----

**THEEMPIRE DISTRICT ELECTRIC COMPANY**

**INDEX**
|           |   | Forward Looking  Statements                                                                 |   |   |
|-----------|--------|---------------------------------------------------------------------------------------------|--------|--------|
|      |   |                                                                                        |   |   |
| Part I -  |   | Financial Information  (Unaudited):                                                         |   |   |
|      |   |                                                                                        |   |   |
| Item 1.   |   | Consolidated  Financial Statements:                                                         |   |   |
|      |   |                                                                                        |   |   |
|      |   | a.Consolidated  Statements of Operations                                                    |   |   |
|      |   |                                                                                        |   |   |
|      |   | b.Consolidated  Statements of Comprehensive Income                                          |   |   |
|      |   |                                                                                        |   |   |
|      |   | c.Consolidated  Balance Sheets                                                              |   |   |
|      |   |                                                                                        |   |   |
|      |   | d.Consolidated  Statements of Cash Flows                                                    |   |   |
|      |   |                                                                                        |   |   |
|      |   | e.Notes to  Consolidated Financial Statements                                               |   |   |
|      |   |                                                                                        |   |   |
| Item 2.   |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |   |
|      |   |                                                                                        |   |   |
|      |   | Executive  Summary                                                                          |   |   |
|      |   |                                                                                        |   |   |
|      |   | Results  of Operations                                                                      |   |   |
|      |   |                                                                                        |   |   |
|      |   | Rate  Matters                                                                               |   |   |
|      |   |                                                                                        |   |   |
|      |   | Competition                                                                                 |   |   |
|      |   |                                                                                        |   |   |
|      |   | Liquidity and  Capital Resources                                                            |   |   |
|      |   |                                                                                        |   |   |
|      |   | Contractual Obligations                                                                     |   |   |
|      |   |                                                                                        |   |   |
|      |   | Dividends                                                                                   |   |   |
|      |   |                                                                                        |   |   |
|      |   | Off-Balance Sheet  Arrangements                                                             |   |   |
|      |   |                                                                                        |   |   |
|      |   | Critical Accounting  Policies.                                                              |   |   |
|      |   |                                                                                        |   |   |
|      |   | Recently  Issued Accounting Standards.                                                      |   |   |
|      |   |                                                                                        |   |   |
| Item 3.   |   | Quantitative  and Qualitative Disclosures About Market Risk                                 |   |   |
|      |   |                                                                                        |   |   |
| Item 4.   |   | Controls and  Procedures                                                                    |   |   |
|      |   |                                                                                        |   |   |
| Part II-  |   | Other Information:                                                                          |   |   |
|      |   |                                                                                        |   |   |
| Item 1.   |   | Legal Proceedings - (none)                                                                  |   |   |
|      |   |                                                                                        |   |   |
| Item  1A. |   | Risk  Factors                                                                               |   |   |
|      |   |                                                                                        |   |   |
| Item 2.   |   | Unregistered Sales of Equity Securities and Use of  Proceeds - (none)                       |   |   |
|      |   |                                                                                        |   |   |
| Item 3.   |   | Defaults Upon Senior Securities - (none)                                                    |   |   |
|      |   |                                                                                        |   |   |
| Item 4.   |   | Submission of  Matters to a Vote of Security Holders                                        |   |   |
|      |   |                                                                                        |   |   |
| Item 5.   |   | Other Information                                                                           |   |   |
|      |   |                                                                                        |   |   |
| Item  6.  |   | Exhibits                                                                                    |   |   |
|      |   |                                                                                        |   |   |
|      |   | Signatures                                                                                  |   |   |

 

2

----

**FORWARD LOOKING STATEMENTS**

Certain matters discussed in this quarterly reportare “forward-looking statements” intended to qualify for the safe harbor fromliability established by the Private Securities Litigation Reform Act of 1995.Such statements address or may address future plans, objectives, expectationsand events or conditions concerning various matters such as capitalexpenditures, earnings, pension and other costs, competition, litigation, ourconstruction program, our generation plans, our financing plans, potentialacquisitions, rate and other regulatory matters, liquidity and capitalresources and accounting matters. Forward-looking statements may contain wordslike “anticipate,” “believe,” “expect,” “project,” “objective” or similarexpressions to identify them as forward-looking statements. Factors that couldcause actual results to differ materially from those currently anticipated insuch statements include:

·                  the amount, terms and timing of rate reliefwe seek and related matters;

·                  the cost and availability of purchased powerand fuel, and the results of our activities (such as hedging) to reduce thevolatility of such costs;

·                  weather, business and economic conditions andother factors which may impact sales volumes and customer growth;

·                  operation of our electric generationfacilities and electric and gas transmission and distribution systems;

·                  the costs and other impacts resulting fromnatural disasters, such as tornados and ice storms;

·                  the periodic revision of our construction andcapital expenditure plans and cost estimates;

·                  legislation;

·                  regulation, including environmentalregulation (such as NOx regulation);

·                  competition, including the implementation ofthe energy imbalance market;

·                  electric utility restructuring, including ongoingfederal activities and potential state activities;

·                  the impact of electric deregulation onoff-system sales;

·                  changes in accounting requirements;

·                  other circumstances affecting anticipatedrates, revenues and costs;

·                  the timing of, accretion estimates, andintegration costs relating to, completed and contemplated acquisitions and theperformance of acquired businesses;

·                  matters such as the effect of changes incredit ratings on the availability and our cost of funds;

·                  interruptions or changes in our coaldelivery, gas transportation or storage agreements or arrangements;

·                  the success of efforts to invest in anddevelop new opportunities; and

·                  costs and effects of legal and administrativeproceedings, settlements, investigations and claims.

All such factors are difficult to predict, containuncertainties that may materially affect actual results, and may be beyond ourcontrol. New factors emerge from time to time and it is not possible formanagement to predict all such factors or to assess the impact of each suchfactor on us. Any forward-looking statement speaks only as of the date on whichsuch statement is made, and we do not undertake any obligation to update anyforward-looking statement to reflect events or circumstances after the date on whichsuch statement is made.

Wecaution you that any forward-looking statements are not guarantees of futureperformance and involve known and unknown risk, uncertainties and other factorswhich may cause our actual results, performance or achievements to differmaterially from the facts, results, performance or achievements we haveanticipated in such forward-looking statements.

3

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**PART I.  FINANCIAL INFORMATION**

**Item1.  Consolidated Financial Statements**

**THEEMPIRE DISTRICT ELECTRIC COMPANY**

**CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**
| ** **                                                                                                    | ** ** | **Three Months Ended**                              | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                    | ** ** | **June 30**                                              | ** ** |
| ** **                                                                                                    | ** ** | **2007**                                                      | ** ** | **2006** | ** ** |
| ** **                                                                                                    | ** ** | **(000’s except per share amounts)** | ** ** |
| **Operating  revenues:**                                                                                      | ** ** | ** **                                                    | ** ** | ** ** | ** ** |
| Electric                                                                                                      | ** ** | **$**                                                         | **97,529** |   | $ | 88,683 |   |
| Gas                                                                                                           | ** ** | **8,438**                                                     |       | 1,627 |   |
| Water                                                                                                         | ** ** | **454**                                                       |       | 485 |   |
| Non-regulated                                                                                                 | ** ** | **1,121**                                                     |       | 938 |   |
|                                                                                                          | ** ** | **107,542**                                                   |       | 91,733 |   |
| **Operating  revenue deductions:**                                                                            |       |                                                          |       |   |   |
| Fuel                                                                                                          | ** ** | **22,189**                                                    |       | 22,784 |   |
| Purchased power                                                                                               | ** ** | **19,702**                                                    |       | 14,205 |   |
| Cost of natural gas sold and transported                                                                      | ** ** | **4,722**                                                     |       | 737 |   |
| Regulated – other                                                                                        | ** ** | **18,210**                                                    |       | 14,550 |   |
| Non-regulated – other                                                                                    | ** ** | **731**                                                       |       | 626 |   |
| Maintenance and repairs                                                                                       | ** ** | **6,234**                                                     |       | 5,149 |   |
| Depreciation and amortization                                                                                 | ** ** | **13,162**                                                    |       | 9,526 |   |
| Provision for income taxes                                                                                    | ** ** | **2,772**                                                     |       | 4,000 |   |
| Other taxes                                                                                                   | ** ** | **5,712**                                                     |       | 4,717 |   |
|                                                                                                          | ** ** | **93,434**                                                    |       | 76,294 |   |
| **Operating  income**                                                                                         | ** ** | **14,108**                                                    |       | 15,439 |   |
| Other income and  (deductions):                                                                               |       |                                                          |       |   |   |
| Allowance for equity funds used during construction                                                           | ** ** | **653**                                                       |       | (2 | ) |
| Interest income                                                                                               | ** ** | **87**                                                        |       | 106 |   |
| Provision for other income taxes                                                                              | ** ** | **11**                                                        |       | 29 |   |
| Other - non-operating expense, net                                                                            | ** ** | **(241**                                                      | **)**      | (238 | ) |
|                                                                                                          | ** ** | **510**                                                       |       | (105 | ) |
| Interest  charges:                                                                                            |       |                                                          |       |   |   |
| Long-term debt                                                                                                | ** ** | **8,060**                                                     |       | 6,252 |   |
| Note payable to securitization trust                                                                          | ** ** | **1,062**                                                     |       | 1,062 |   |
| Short-term debt                                                                                               | ** ** | **314**                                                       |       | 876 |   |
| Allowance for borrowed funds used during  construction                                                        | ** ** | **(966**                                                      | **)**      | (570 | ) |
| Other                                                                                                         | ** ** | **314**                                                       |       | 277 |   |
|                                                                                                          | ** ** | **8,784**                                                     |       | 7,897 |   |
| **Income  from continuing operations**                                                                        | ** ** | **5,834**                                                     |       | 7,437 |   |
| **Loss  from discontinued operations, net of tax**                                                            | ** ** | **—**                                                    |       | (320 | ) |
| **Net  income**                                                                                               | ** ** | **$**                                                         | **5,834**  |   | $ | 7,117 |   |
| **Weighted  average number of common shares outstanding - basic**                                             | ** ** | **30,384**                                                    |       | 26,587 |   |
| **Weighted  average number of common shares outstanding - diluted**                                           | ** ** | **30,406**                                                    |       | 26,605 |   |
| **Earnings  from continuing operations per weighted average share of common stock– basic  and diluted**  | ** ** | **$**                                                         | **0.19**   |   | $ | 0.28 |   |
| **Losses  from discontinued operations per weighted average share of common stock –  basic and diluted** | ** ** | **$**                                                         | **—** |   | $ | (0.01 | ) |
| **Total  earnings per weighted average share of common stock – basic and diluted**                       | ** ** | **$**                                                         | **0.19**   |   | $ | 0.27 |   |
| **Dividends per share of common  stock**                                                                      | ** ** | **$**                                                         | **0.32**   |   | $ | 0.32 |   |

 

*See accompanying Notes to Consolidated Financial Statements.*

4

----

 
| ** **                                                                                                    | ** ** | **Six Months Ended**                                | ** **  |
|---------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|-------------|
| ** **                                                                                                    | ** ** | **June 30,**                                             | ** **  |
| ** **                                                                                                    | ** ** | **2007**                                                      | ** **  | **2006** | ** ** |
| ** **                                                                                                    | ** ** | **(000’s except per share amounts)** | ** **  |
| **Operating  revenues:**                                                                                      | ** ** | ** **                                                    | ** **  | ** ** | ** ** |
| Electric                                                                                                      | ** ** | **$**                                                         | **194,437** |   | $ | 171,400 |   |
| Gas                                                                                                           | ** ** | **36,028**                                                    |        | 1,627 |   |
| Water                                                                                                         | ** ** | **904**                                                       |        | 854 |   |
| Non-regulated                                                                                                 | ** ** | **2,113**                                                     |        | 1,835 |   |
|                                                                                                          | ** ** | **233,482**                                                   |        | 175,716 |   |
| **Operating  revenue deductions:**                                                                            |       |                                                          |        |   |   |
| Fuel                                                                                                          | ** ** | **47,413**                                                    |        | 43,663 |   |
| Purchased power                                                                                               | ** ** | **39,921**                                                    |        | 34,133 |   |
| Cost of natural gas sold and transported                                                                      | ** ** | **23,444**                                                    |        | 737 |   |
| Regulated – other                                                                                        | ** ** | **35,571**                                                    |        | 27,419 |   |
| Non-regulated – other                                                                                    | ** ** | **1,335**                                                     |        | 1,227 |   |
| Maintenance and repairs                                                                                       | ** ** | **17,012**                                                    |        | 10,359 |   |
| Depreciation and amortization                                                                                 | ** ** | **25,939**                                                    |        | 18,801 |   |
| Provision for income taxes                                                                                    | ** ** | **4,402**                                                     |        | 5,143 |   |
| Other taxes                                                                                                   | ** ** | **12,453**                                                    |        | 9,501 |   |
|                                                                                                          | ** ** | **207,490**                                                   |        | 150,983 |   |
| **Operating  income**                                                                                         | ** ** | **25,992**                                                    |        | 24,733 |   |
| Other income and  (deductions):                                                                               |       |                                                          |        |   |   |
| Allowance for equity funds used during construction                                                           | ** ** | **1,559**                                                     |        | 122 |   |
| Interest income                                                                                               | ** ** | **181**                                                       |        | 193 |   |
| Provision for other income taxes                                                                              | ** ** | **21**                                                        |        | 52 |   |
| Other - non-operating expense, net                                                                            | ** ** | **(485**                                                      | **)**       | (441 | ) |
|                                                                                                          | ** ** | **1,276**                                                     |        | (74 | ) |
| Interest  charges:                                                                                            |       |                                                          |        |   |   |
| Long-term debt                                                                                                | ** ** | **15,004**                                                    |        | 12,190 |   |
| Note payable to securitization trust                                                                          | ** ** | **2,125**                                                     |        | 2,125 |   |
| Short-term debt                                                                                               | ** ** | **1,342**                                                     |        | 1,252 |   |
| Allowance for borrowed funds used during  construction                                                        | ** ** | **(2,120**                                                    | **)**       | (955 | ) |
| Other                                                                                                         | ** ** | **582**                                                       |        | 528 |   |
|                                                                                                          | ** ** | **16,933**                                                    |        | 15,140 |   |
| **Income  from continuing operations**                                                                        | ** ** | **10,335**                                                    |        | 9,519 |   |
| **Loss  from discontinued operations, net of tax**                                                            | ** ** | **—**                                                    |        | (789 | ) |
| ** **                                                                                                    | ** ** | ** **                                                    |        |   |   |
| **Net  income**                                                                                               | ** ** | **$**                                                         | **10,335**  |   | $ | 8,730 |   |
| **Weighted  average number of common shares outstanding - basic**                                             | ** ** | **30,341**                                                    |        | 26,362 |   |
| **Weighted  average number of common shares outstanding - diluted**                                           | ** ** | **30,361**                                                    |        | 26,377 |   |
| **Earnings  from continuing operations per weighted average share of common stock– basic  and diluted**  | ** ** | **$**                                                         | **.34**     |   | $ | 0.36 |   |
| **Losses  from discontinued operations per weighted average share of common stock –  basic and diluted** | ** ** | **$**                                                         | **—**  |   | $ | (0.03 | ) |
| **Total  earnings per weighted average share of common stock – basic and diluted**                       | ** ** | **$**                                                         | **.34**     |   | $ | 0.33 |   |
| **Dividends  per share of common stock**                                                                      | ** ** | **$**                                                         | **0.64**    |   | $ | 0.64 |   |

 

*See accompanying Notes to Consolidated Financial Statements.*

5

----

** **
| ** **                                                                                                               | ** ** | **Twelve Months Ended**                             | ** **  |
|--------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|-------------|
| ** **                                                                                                               | ** ** | **June 30,**                                             | ** **  |
| ** **                                                                                                               | ** ** | **2007**                                                      | ** **  | **2006** | ** ** |
| ** **                                                                                                               | ** ** | **(000’s except per share amounts)** | ** **  |
| **Operating  revenues:**                                                                                                 | ** ** | ** **                                                    | ** **  | ** ** | ** ** |
| Electric                                                                                                                 | ** ** | **$**                                                         | **405,682** |   | $ | 375,012 |   |
| Gas                                                                                                                      | ** ** | **59,547**                                                    |        | 1,627 |   |
| Water                                                                                                                    | ** ** | **1,893**                                                     |        | 1,617 |   |
| Non-regulated                                                                                                            | ** ** | **4,097**                                                     |        | 3,598 |   |
|                                                                                                                     | ** ** | **471,219**                                                   |        | 381,854 |   |
| **Operating  revenue deductions:**                                                                                       |       |                                                          |        |   |   |
| Fuel                                                                                                                     | ** ** | **97,705**                                                    |        | 108,581 |   |
| Purchased power                                                                                                          | ** ** | **72,127**                                                    |        | 63,026 |   |
| Cost of natural gas sold and transported                                                                                 | ** ** | **37,992**                                                    |        | 737 |   |
| Regulated – other                                                                                                   | ** ** | **68,238**                                                    |        | 53,675 |   |
| Non-regulated – other                                                                                               | ** ** | **2,666**                                                     |        | 2,481 |   |
| Maintenance and repairs                                                                                                  | ** ** | **29,804**                                                    |        | 20,737 |   |
| Loss on plant disallowance                                                                                               | ** ** | **828**                                                       |        | — |   |
| Depreciation and amortization                                                                                            | ** ** | **45,852**                                                    |        | 37,052 |   |
| Provision for income taxes                                                                                               | ** ** | **21,103**                                                    |        | 15,687 |   |
| Other taxes                                                                                                              | ** ** | **23,978**                                                    |        | 19,695 |   |
|                                                                                                                     | ** ** | **400,293**                                                   |        | 321,671 |   |
| **Operating  income**                                                                                                    | ** ** | **70,926**                                                    |        | 60,183 |   |
| Other income and  (deductions):                                                                                          |       |                                                          |        |   |   |
| Allowance for equity funds used during construction                                                                      | ** ** | **2,841**                                                     |        | 380 |   |
| Interest income                                                                                                          | ** ** | **377**                                                       |        | 431 |   |
| Provision for other income taxes                                                                                         | ** ** | **(15**                                                       | **)**       | (6 | ) |
| Other - non-operating expense, net                                                                                       | ** ** | **(1,005**                                                    | **)**       | (975 | ) |
|                                                                                                                     | ** ** | **2,198**                                                     |        | (170 | ) |
| Interest  charges:                                                                                                       |       |                                                          |        |   |   |
| Long-term debt                                                                                                           | ** ** | **28,761**                                                    |        | 24,067 |   |
| Note payable to securitization trust                                                                                     | ** ** | **4,250**                                                     |        | 4,250 |   |
| Short-term debt                                                                                                          | ** ** | **2,366**                                                     |        | 1,337 |   |
| Allowance for borrowed funds used during  construction                                                                   | ** ** | **(4,015**                                                    | **)**       | (1,123 | ) |
| Other                                                                                                                    | ** ** | **1,083**                                                     |        | 847 |   |
|                                                                                                                     | ** ** | **32,445**                                                    |        | 29,378 |   |
| **Income  from continuing operations**                                                                                   | ** ** | **40,679**                                                    |        | 30,635 |   |
| **Earnings  (losses) from discontinued operations, net of tax**                                                          | ** ** | **206**                                                       |        | (1,046 | ) |
| **Net  income**                                                                                                          | ** ** | **$**                                                         | **40,885**  |   | $ | 29,589 |   |
| **Weighted  average number of common shares outstanding - basic**                                                        | ** ** | **30,250**                                                    |        | 26,180 |   |
| **Weighted  average number of common shares outstanding - diluted**                                                      | ** ** | **30,266**                                                    |        | 26,194 |   |
| **Earnings  from continuing operations per weighted average share of common stock– basic  and diluted**             | ** ** | **$**                                                         | **1.34**    |   | $ | 1.17 |   |
| **Earnings  (losses) from discontinued operations per weighted average share of common  stock – basic and diluted** | ** ** | **$**                                                         | **0.01**    |   | $ | (0.04 | ) |
| **Total  earnings per weighted average share of common stock – basic and diluted**                                  | ** ** | **$**                                                         | **1.35**    |   | $ | 1.13 |   |
| **Dividends  per share of common stock**                                                                                 | ** ** | **$**                                                         | **1.28**    |   | $ | 1.28 |   |

 

*See accompanying Notes to Consolidated Financial Statements.*

6

----

**THE EMPIRE DISTRICT ELECTRIC COMPANY**

**CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME (UNAUDITED)**
| ** **                                                                                                       | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                       | ** ** | **June 30,**                | ** ** |
| ** **                                                                                                       | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                                                                                                       | ** ** | **($-000’s)**               | ** ** |
|                                                                                                             |       |                             |       |   |   |
| Net income                                                                                                       | ** ** | **$**                            | **5,834**  |   | $ | 7,117 |   |
| Reclassification  adjustments for gains included in net income or reclassified to regulatory  asset or liability |       | **(216**                         | **)**      | 132 |   |
| Net change in  fair market value of open derivative contracts for period                                         | ** ** | **5,731**                        |       | (2,349 | ) |
| Income taxes                                                                                                     | ** ** | **(2,101**                       | **)**      | 845 |   |
| Net change in  unrealized gain/(loss) on derivative contracts                                                    | ** ** | **3,414**                        |       | (1,372 | ) |
| ** **                                                                                                       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Comprehensive income**                                                                                         | ** ** | **$**                            | **9,248**  |   | $ | 5,745 |   |

 
| ** **                                                                                                       | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                       | ** ** | **June 30,**              | ** ** |
| ** **                                                                                                       | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| ** **                                                                                                       | ** ** | **($-000’ s)**       | ** ** |
|                                                                                                             |       |                           |       |   |   |
| Net income                                                                                                       | ** ** | **$**                          | **10,335** |   | $ | 8,730 |   |
| Reclassification  adjustments for gains included in net income or reclassified to regulatory  asset or liability |       | **(52**                        | **)**      | (805 | ) |
| Net change in  fair market value of open derivative contracts for period                                         | ** ** | **8,611**                      |       | (8,373 | ) |
| Income taxes                                                                                                     | ** ** | **(3,261**                     | **)**      | 3,497 |   |
| Net change in  unrealized gain/(loss) on derivative contracts                                                    | ** ** | **5,298**                      |       | (5,681 | ) |
| ** **                                                                                                       | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Comprehensive income**                                                                                         | ** ** | **$**                          | **15,633** |   | $ | 3,049 |   |

 
| ** **                                                                                                       | ** ** | **Twelve Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                       | ** ** | **June 30,**                 | ** ** |
| ** **                                                                                                       | ** ** | **2007**                          | ** ** | **2006** | ** ** |
| ** **                                                                                                       | ** ** | **($-000’s)**                | ** ** |
|                                                                                                             |       |                              |       |   |   |
| Net income                                                                                                       | ** ** | **$**                             | **40,885** |   | $ | 29,589 |   |
| Reclassification  adjustments for gains included in net income or reclassified to regulatory  asset or liability |       | **(567**                          | **)**      | (4,903 | ) |
| Net change in  fair value of open derivative contracts for period                                                | ** ** | **3,380**                         |       | 3,065 |   |
| Income taxes                                                                                                     | ** ** | **(1,072**                        | **)**      | 679 |   |
| Net change in  unrealized gain/(loss) on derivative contracts                                                    | ** ** | **1,741**                         |       | (1,159 | ) |
| ** **                                                                                                       | ** ** | ** **                        | ** ** | ** ** | ** ** |
| **Comprehensive income**                                                                                         | ** ** | **$**                             | **42,626** |   | $ | 28,430 |   |

 

*Seeaccompanying Notes to Consolidated Financial Statements*

7

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**THE EMPIRE DISTRICT ELECTRIC COMPANY**

**CONSOLIDATEDBALANCE SHEETS (UNAUDITED)**
| ** **                                             | ** ** | **June 30, 2007** | ** **    | **December 31, 2006** | ** ** |
|--------------------------------------------------------|------------|-----------------------------|---------------|---------------------------------|------------|
| ** **                                             | ** ** | **($-000’s)**          | ** **    |
| **Assets**                                             |       |                        |          |                            |       |
| Plant and property, at  original cost:                 |       |                        |          |                            |       |
| Electric                                               | ** ** | **$**                       | **1,377,293** |                            | $          | 1,291,533 |   |
| Gas                                                    | ** ** | **53,505**                  |          | 51,936                          |       |
| Water                                                  | ** ** | **10,296**                  |          | 10,126                          |       |
| Non-regulated                                          | ** ** | **24,437**                  |          | 23,285                          |       |
| Construction work in progress                          | ** ** | **113,244**                 |          | 111,918                         |       |
|                                                   | ** ** | **1,578,775**               |          | 1,488,798                       |       |
| Accumulated depreciation and  amortization             | ** ** | **479,948**                 |          | 457,804                         |       |
|                                                   | ** ** | **1,098,827**               |          | 1,030,994                       |       |
|                                                   |       |                        |          |                            |       |
| Current assets:                                        |       |                        |          |                            |       |
| Cash and cash equivalents                              | ** ** | **2,241**                   |          | 12,355                          |       |
| Accounts receivable – trade,  net                 | ** ** | **34,146**                  |          | 33,477                          |       |
| Accrued unbilled revenues                              | ** ** | **15,179**                  |          | 14,866                          |       |
| Accounts receivable – other                       | ** ** | **16,225**                  |          | 13,234                          |       |
| Fuel, materials and supplies                           | ** ** | **45,060**                  |          | 46,618                          |       |
| Unrealized gain in fair value  of derivative contracts | ** ** | **4,016**                   |          | 3,819                           |       |
| Prepaid expenses                                       | ** ** | **3,431**                   |          | 3,731                           |       |
|                                                   | ** ** | **120,298**                 |          | 128,100                         |       |
| Noncurrent assets and deferred charges:                |       |                        |          |                            |       |
| Regulatory assets                                      | ** ** | **95,932**                  |          | 94,395                          |       |
| Goodwill                                               | ** ** | **39,492**                  |          | 39,323                          |       |
| Unamortized debt issuance  costs                       | ** ** | **6,893**                   |          | 6,044                           |       |
| Unrealized gain in fair value  of derivative contracts | ** ** | **18,967**                  |          | 11,811                          |       |
| Other                                                  | ** ** | **4,930**                   |          | 5,221                           |       |
|                                                   | ** ** | **166,214**                 |          | 156,794                         |       |
| Total Assets                                           | ** ** | **$**                       | **1,385,339** |                            | $          | 1,315,888 |   |

 

(Continued)

*Seeaccompanying Notes to Consolidated Financial Statements*

8

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| ** **                                                                                         | ** ** | **June 30, 2007** | ** **    | **December 31, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------------|---------------|---------------------------------|------------|
| ** **                                                                                         | ** ** | **($-000’s)**          | ** **    |
| **Capitalization and Liabilities**                                                                 |       |                        |          |                            |       |
| Common stock, $1 par value,  30,456,059 and 30,250,566 shares issued and outstanding, respectively |       | **$**                       | **30,456**    |                            | $          | 30,251 |   |
| Capital in excess of par value                                                                     | ** ** | **410,636**                 |          | 406,650                         |       |
| Retained earnings                                                                                  | ** ** | **13,773**                  |          | 22,916                          |       |
| Accumulated other  comprehensive income, net of income tax                                         | ** ** | **14,090**                  |          | 8,792                           |       |
| Total common stockholders’  equity                                                            | ** ** | **468,955**                 |          | 468,609                         |       |
|                                                                                               |       |                        |          |                            |       |
| Long-term debt:                                                                                    |       |                        |          |                            |       |
| Note payable to securitization  trust                                                              | ** ** | **50,000**                  |          | 50,000                          |       |
| Obligations under capital  lease                                                                   | ** ** | **432**                     |          | 512                             |       |
| First mortgage bonds and  secured debt                                                             | ** ** | **242,938**                 |          | 163,088                         |       |
| Unsecured debt                                                                                     | ** ** | **248,711**                 |          | 248,837                         |       |
| Total long-term debt                                                                               | ** ** | **542,081**                 |          | 462,437                         |       |
| Total long-term debt and  common stockholders’ equity                                         | ** ** | **1,011,036**               |          | 931,046                         |       |
|                                                                                               |       |                        |          |                            |       |
| Current liabilities:                                                                               |       |                        |          |                            |       |
| Accounts payable and accrued  liabilities                                                          | ** ** | **51,414**                  |          | 51,794                          |       |
| Current maturities of  long-term debt                                                              | ** ** | **214**                     |          | 233                             |       |
| Short-term debt                                                                                    | ** ** | **49,892**                  |          | 77,050                          |       |
| Customer deposits                                                                                  | ** ** | **7,705**                   |          | 7,239                           |       |
| Interest accrued                                                                                   | ** ** | **5,395**                   |          | 3,889                           |       |
| Unrealized loss in fair value  of derivative contracts                                             | ** ** | **929**                     |          | 1,372                           |       |
| Taxes accrued                                                                                      | ** ** | **9,693**                   |          | 2,744                           |       |
| Other current liabilities                                                                          | ** ** | **2,106**                   |          | 1,790                           |       |
|                                                                                               | ** ** | **127,348**                 |          | 146,111                         |       |
| Commitments and contingencies (Note 8)                                                             |       |                        |          |                            |       |
| Noncurrent liabilities and deferred credits:                                                       |       |                        |          |                            |       |
| Regulatory liabilities                                                                             | ** ** | **53,478**                  |          | 49,822                          |       |
| Deferred income taxes                                                                              | ** ** | **144,353**                 |          | 140,838                         |       |
| Unamortized investment tax  credits                                                                | ** ** | **3,836**                   |          | 3,971                           |       |
| Pension and other  postretirement benefit obligations                                              | ** ** | **26,455**                  |          | 26,458                          |       |
| Unrealized loss in fair value  of derivative contracts                                             | ** ** | **353**                     |          | —                          |       |
| Other                                                                                              | ** ** | **18,480**                  |          | 17,642                          |       |
|                                                                                               | ** ** | **246,955**                 |          | 238,731                         |       |
| Total Capitalization and Liabilities                                                               | ** ** | **$**                       | **1,385,339** |                            | $          | 1,315,888 |   |

 

*Seeaccompanying Notes to Consolidated Financial Statements.*

9

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**THEEMPIRE DISTRICT ELECTRIC COMPANY**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**
| ** **                                                                    | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                    | ** ** | **June 30,**              | ** ** |
| ** **                                                                    | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| ** **                                                                    | ** ** | **($-000’s)**             | ** ** |
| **Operating  activities:**                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net income                                                                    | ** ** | **$**                          | **10,335** |   | $ | 8,730 |   |
| Adjustments to reconcile net income to cash flows  from operating activities: |       |                           |       |   |   |
| Depreciation and amortization                                                 | ** ** | **28,826**                     |       | 21,037 |   |
| Pension and postretirement benefit costs                                      | ** ** | **4,278**                      |       | 2,705 |   |
| Deferred income taxes and investment tax credit, net                          | ** ** | **(591**                       | **)**      | 227 |   |
| Allowance for equity funds used during construction                           | ** ** | **(1,559**                     | **)**      | (122 | ) |
| Stock compensation expense                                                    | ** ** | **1,411**                      |       | 992 |   |
| Unrealized gain on derivatives                                                | ** ** | **255**                        |       | (1,876 | ) |
| Cash flows impacted by changes in:                                            |       |                           |       |   |   |
| Accounts receivable and accrued unbilled revenues                             | ** ** | **(5,392**                     | **)**      | 9,645 |   |
| Fuel, materials and supplies                                                  | ** ** | **1,557**                      |       | (6,568 | ) |
| Prepaid expenses, other current assets and deferred  charges                  | ** ** | **(4,918**                     | **)**      | (2,371 | ) |
| Accounts payable and accrued liabilities                                      | ** ** | **(161**                       | **)**      | (15,280 | ) |
| Customer deposits, interest and taxes accrued                                 | ** ** | **8,934**                      |       | 8,153 |   |
| Other liabilities and other deferred credits                                  | ** ** | **295**                        |       | 358 |   |
|                                                                          |       |                           |       |   |   |
| Net cash provided by operating activities of  continuing operations           | ** ** | **43,270**                     |       | 25,630 |   |
| Net cash provided by operating activities of  discontinued operations         | ** ** | **—**                     |       | 1,330 |   |
| **Net  cash provided by operating activities**                                | ** ** | **43,270**                     |       | 26,960 |   |
| ** **                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Investing  activities:**                                                    |       |                           |       |   |   |
| Capital expenditures – regulated                                         | ** ** | **(88,789**                    | **)**      | (51,659 | ) |
| Capital expenditures and other investments –  non-regulated              | ** ** | **(1,811**                     | **)**      | (1,267 | ) |
| Acquisition of gas operations                                                 | ** ** | **—**                     |       | (103,193 | ) |
| Proceeds from the sale of non-regulated business                              | ** ** | **2,500**                      | ** ** | **—** | ** ** |
|                                                                          |       |                           |       |   |   |
| Net cash used in investing activities of continuing  operations               | ** ** | **(88,100**                    | **)**      | (156,119 | ) |
| Net cash used in investing activities of  discontinued operations             | ** ** | **—**                     |       | (304 | ) |
| **Net  cash used in investing activities**                                    | ** ** | **(88,100**                    | **)**      | (156,423 | ) |
| ** **                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Financing  activities:**                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Proceeds from first mortgage bonds - electric                                 | ** ** | **79,831**                     |       | — |   |
| Proceeds from first mortgage bonds - gas                                      | ** ** | **—**                     |       | 55,000 |   |
| Long-term debt issuance costs                                                 | ** ** | **(1,076**                     | **)**      | (741 | ) |
| Proceeds from issuance of common stock net of  issuance costs                 | ** ** | **2,806**                      |       | 76,317 |   |
| Net short-term (repayments) borrowings                                        | ** ** | **(27,158**                    | **)**      | 4,048 |   |
| Dividends                                                                     | ** ** | **(19,424**                    | **)**      | (16,758 | ) |
| Other                                                                         | ** ** | **(263**                       | **)**      | (299 | ) |
| ** **                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net cash provided by financing activities of  continuing operations           | ** ** | **34,716**                     |       | 117,567 |   |
| Net cash used in financing activities of  discontinued operations             | ** ** | **—**                     |       | (253 | ) |
| **Net  cash provided by financing activities**                                | ** ** | **34,716**                     |       | 117,314 |   |
| ** **                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Net  decrease in cash and cash equivalents**                                | ** ** | **(10,114**                    | **)**      | (12,149 | ) |
| ** **                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Cash  and cash equivalents at beginning of period**                         | ** ** | **12,355**                     |       | 15,941 |   |
| ** **                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Cash and cash equivalents at  end of period**                               | ** ** | **$**                          | **2,241**  |   | $ | 3,792 |   |

 

*See accompanying Notes to Consolidated Financial Statements.*

10

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**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**Note 1- Summary of Significant Accounting Policies**

We operate our businesses as three segments:  electric, gas and other. The Empire DistrictElectric Company (EDE), a Kansas corporation organized in 1909, is an operatingpublic utility engaged in the generation, purchase, transmission, distributionand sale of electricity in parts of Missouri, Kansas, Oklahoma and Arkansas. Aspart 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 formed tohold the Missouri Gas assets acquired from Aquila, Inc. on June 1, 2006. Itprovides natural gas distribution to communities in northwest, north centraland west central Missouri. Our other segment includes investments in certainnon-regulated businesses, including fiber optics and Internet access. Thesebusinesses are held by our wholly-owned subsidiary, EDE Holdings, Inc. (EDEHoldings).

The accompanying interim financial statements do notinclude all disclosures included in the annual financial statements andtherefore should be read in conjunction with the financial statements and notesthereto included in our Annual Report on Form 10-K for the fiscal year ended December31, 2006.

Theinformation furnished reflects all adjustments, consisting only of normalrecurring adjustments, which are in our opinion necessary to state fairly theresults for the interim periods as well as present these periods on aconsistent basis with the financial statements for the fiscal year endedDecember 31, 2006.Certainreclassifications have been made to prior year information to conform to thecurrent year presentation.

The Missouri Public Service Commission (MPSC) issuedan order pertaining to our electric segment on December 21, 2006 granting us anannual increase of $29.4 million (including regulatory amortization), or 9.96%,with an effective date of January 1, 2007 and eliminating the Interim EnergyCharge (IEC). The accounting treatment in this order includes regulatoryamortization which provides us additional cash flow through rates to beginrecovery of costs associated with our current generation expansion. Thisregulatory amortization was $5.2 million for the first six months of 2007 and has been recorded as depreciationexpense. Additionally, the MPSC adopted an agreement of the parties to continuethe FAS 87 tracker for pension costs implemented in our March 2005 rate case.This order also establishes a similar mechanism for FAS 106 otherpostretirement benefit expenses. Please see Note 9 for further discussion ofpension and other postretirement benefit regulatory treatment.

On February 1, 2007, the Southwest Power Pool (SPP)regional transmission organization (RTO) launched its Energy Imbalance Services(EIS) market. The EIS market is monitored by our Wholesale Energy group. Salesand purchase transactions are netted on an hourly basis to determine if we area net seller or a net purchaser. Net sales are recorded as off-system saleswhile net purchases are recorded as purchased power.

A major ice storm struck virtually all areas of ourelectric service territory January 12-14, 2007 causing substantial damage.Approximately 85,000 (52%) of our electric customers were without power at theheight of the storm. Costs associated with the restoration effort due to theice storm were approximately $30.7 million, of which $19.2 million has beencapitalized as additions to our utility plant, approximately $4.6 millionrecorded as maintenance expense and approximately $6.9 million was deferred asa regulatory asset as we believe it is probable that these costs will berecoverable in future electric rate cases.

**Note 2 - Recently Issued Accounting Standards**

OnSeptember 15, 2006, the FASB issued FASB No. 157, “Fair Value Measurements”(FAS 157), which provides guidance for using fair value to measure assets andliabilities. FAS 157 also responds to investors’ requests for more informationabout (1) the extent to which companies measure assets and liabilities at fairvalue, (2) the information used to measure fair value and (3) 

11

----

the effect that fair-valuemeasurements have on earnings. FAS 157 will apply whenever another standardrequires (or permits) assets or liabilities to be measured at fair value. Thisstandard does not expand the use of fair value to any new circumstances. FAS157 is effective for financial statements issued for fiscal years beginningafter November 15, 2007 and interim periods within those fiscal years. We havenot yet completed our review regarding the impact of the adoption of thisstandard; however, we do not expect the adoption of this standard to have amaterial impact on our financial statements.

OnFebruary 15, 2007, the FASB issued FASB No. 159, “The Fair-Value Option forFinancial Assets and Financial Liabilities – including an amendment of FAS 115”(FAS 159). Under FAS 159, a company may elect to measure eligible financialassets and financial liabilities at fair value. Unrealized gains and losses onitems for which the fair value option has been elected are reported in earningsat each subsequent reporting date. FAS 159 is effective for financialstatements issued for fiscal years beginning after November 15, 2007. We havenot yet completed our review regarding the impact of the adoption of thisstandard; however, we do not expect the adoption of this standard to have amaterial impact on our financial statements.

SeeNote 1 under “Notes to Consolidated Financial Statements” in our Annual Reporton Form 10-K for the year ended December 31, 2006 for further informationregarding recently issued accounting standards.

**Note 3 – FASB Interpretation No. 48 (FIN 48) – Accounting forUncertainty in Income Taxes**

OnJuly 13, 2006, the FASB issued FIN 48, which clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with FASB Statement No. 109, “Accounting for Income Taxes.” Wefile consolidated income tax returns in the U.S. federal and statejurisdictions. With few exceptions, we are no longer subject to U.S. federal,state and local, or non-U.S. income tax examinations by tax authorities foryears before 2003. We adopted the provisions of FIN 48**on January1, 2007. As a result of the implementation of FIN 48, we recognizedapproximately $54,000 of additional liability for unrecognized tax benefits,which was accounted for as a reduction to the January 1, 2007 balance ofretained earnings. At January 1, 2007 and June 30, 2007, our balance sheetincluded approximately $219,000 and $246,000, respectively, of unrecognized taxbenefits which would affect our effective tax rate if recognized. We do notexpect any material changes to unrecognized tax benefits within the next twelvemonths. Because of the impact of deferred tax accounting, other than interestand penalties, the disallowance of the shorter deductibility period would notaffect the annual effective tax rate but would accelerate the payment of cashto the taxing authority to an earlier period. We recognize interest accrued andpenalties related to unrecognized tax benefits in other expenses.

**Note 4– Regulatory Matters**

The following table sets forth the components of our regulatory assetsand liabilities on our consolidated balance sheet.

**Regulatory Assets and Liabilities**
| **(In thousands)**                                          | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| **Regulatory Assets:**                                           | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| ** Income  taxes**                                          |       | $                           | 28,723     |                            | $          | 27,893 |   |
| ** Unamortized loss on reacquired debt**                    |       | 15,474                      |       | 16,136                          |       |
| ** Unamortized loss on interest rate derivative**           |       | 2,877                       |       | 3,035                           |       |
| ** Pension  and other postretirement benefits (1)**         |       | 37,100                      |       | 40,145                          |       |
| ** Asset  retirement obligation**                           |       | 2,991                       |       | 3,022                           |       |
| ** Unrecovered purchased gas costs and Kansas  fuel costs** |       | 1,008                       |       | 3,024                           |       |
| **Ice storm costs**                                              |       | 6,907                       |       | —                          |       |
| **Other**                                                        |       | 852                         |       | 1,140                           |       |
| **Total**                                                        |       | $                           | 95,932     |                            | $          | 94,395 |   |

 

12

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| **(In thousands)**                          | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| **Regulatory  Liabilities:**                     | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| **Income taxes**                                 |       | $                           | 11,641     |                            | $          | 12,100 |   |
| **Unamortized gain on interest rate derivative** |       | 4,476                       |       | 4,561                           |       |
| **Gain on disposition of emission allowances**   |       | 380                         |       | 361                             |       |
| **Cost of removal**                              |       | 33,796                      |       | 31,461                          |       |
| **Pensions and other postretirement benefits**   |       | 2,827                       |       | 1,339                           |       |
| **Kansas fuel costs**                            |       | 358                         |       | —                          |       |
| **Total**                                        |       | $                           | 53,478     |                            | $          | 49,822 |   |

 

----

(1) Primarily reflectsregulatory assets resulting from the adoption of FAS 158 and regulatoryaccounting for EDG acquisition costs.

Pension and Other Postretirement Benefits:  Asdiscussed in Note 1, effective January 1, 2007, the MPSC granted regulatorytreatment for our other postretirement benefit costs and correspondingincreases in regulatory liabilities for our electric operations similar to thetreatment already in place for our pension costs. We now recognize a regulatoryasset or liability, along with corresponding decreases or increases in expense,respectively, for actuarial costs incurred that are more or less than thoseallowed in rates for the Missouri (EDE and EDG) and Kansas (EDE) portion ofpension costs and the Missouri EDE portion of other postretirement benefitcosts. Since January 1, 2007, approximately $1.5 million in additionalregulatory liabilities and corresponding expense increases have beenrecognized.

In addition, approximately $0.5 million in pensionand other postretirement benefit costs have been recognized since January 1,2007 to reflect the amortization of the regulatory assets that were recorded atthe time of the acquisition of the Aquila, Inc. gas properties. Theseregulatory assets reflect that the purchase accounting entries related topension and other postretirement benefit costs were allowed to be ignored forratemaking purposes, as they will be recovered in future rates.

**Note 5–Acquisition of Missouri Natural Gas Distribution Operations**

OnSeptember 21, 2005, we announced that we had entered into an Asset PurchaseAgreement with Aquila, Inc., pursuant to which we agreed to acquire theMissouri natural gas distribution operations of Aquila, Inc. This acquisitionwas completed by our wholly-owned subsidiary, The Empire District Gas Company(EDG), on June 1, 2006. This transaction was subject to the approval of theMPSC, which was obtained, effective May 1, 2006. The total purchase price,including working capital and net plant adjustments but excluding acquisitioncosts, was $102.5 million. We recorded $39.5 million of goodwill as a result ofthe acquisition.  All of this goodwill isexpected to be tax deductible.

**The components of the purchase price allocation for theMissouri Gas acquisition are shown below. Assets and liabilities were valued atfair value. In the case of property, plant and equipment, fair value wascalculated in a manner consistent with the amount recoverable for regulatorytreatment.**
| (In thousands)               | ** ** | **Missouri Gas** | ** ** |
|-----------------------------------|------------|-----------------------|------------|
| **Purchase  Price:**              | ** ** | ** **            | ** ** |
| **Cash paid**                     |       | $                     | 102,502    |   |
| **Acquisition costs**             |       | 2,447                 |       |
| **Total**                         |       | $                     | 104,949    |   |
| ** **                        | ** ** | ** **            | ** ** |
| **Allocation:**                   | ** ** | ** **            | ** ** |
| **Property, plant and equipment** |       | $                     | 52,226     |   |
| **Current assets**                |       | 15,292                |       |
| **Goodwill**                      |       | 39,492                |       |
| **Other assets**                  |       | 11,082                |       |
| **Other liabilities**             |       | (13,143               | )          |
| **Total**                         |       | $                     | 104,949    |   |

 

13

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The following presents certain consolidated proformafinancial information for the three months, six months and twelve months endedJune 30, 2006 as if our acquisition of Missouri Gas had been completed as ofJuly 1, 2005. These estimates are based on historical results of the MissouriGas operations, provided to us by Aquila, Inc., and are unaudited.
|                                                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** | **Twelve Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| **($-000’s except per share amounts)**   | ** ** | **2006**                         | ** ** | **2006**                       | ** ** | **2006**                          | ** ** |
|                                                              |       |                             |       |                           |       |                              |       |
| Revenues                                                          |       | $                                | 96,893     |                           | $          | 205,361                           |       | $ | 438,119 |   |
|                                                              |       |                             |       |                           |       |                              |       |
| Net income from  continuing operations                            |       | 7,240                            |       | 11,076                         |       | 32,280                            |       |
|                                                              |       |                             |       |                           |       |                              |       |
| Earnings per share from  continuing operations -basic and diluted |       | $                                | 0.27       |                           | $          | 0.40                              |       | $ | 1.09 |   |

 

**Note 6– Risk Management and Derivative FinancialInstruments**

*Electric*

We utilize derivatives to help manage our naturalgas commodity market risk resulting from purchasing natural gas, to be used asfuel, on the volatile spot market and to manage certain interest rate exposure.

A$14.1 million net of tax, unrealized gain representing the fair market value ofderivative contracts treated as cash flow hedges is recognized as AccumulatedOther Comprehensive Income in the capitalization section of the balance sheetas of June 30, 2007. The tax effect of $8.7 million on this gain is included indeferred taxes. These amounts will be adjusted cumulatively on a monthly basisduring the determination periods, beginning July 1, 2007 and ending onSeptember 30, 2011. At the end of each determination period, or if cash flowhedge treatment is discontinued, any gain or loss for that period related tothe instrument will be reclassified to fuel expense.

Asof June 30, 2007, we elected to change our valuation of natural gas derivatives(financial hedges) for financial reporting purposes to a new methodology whichis more closely related to an independent market valuation. For accountingpurposes, this change is considered a change in estimate. To reflect thechange, an approximate $6 million increase was recorded to the fair value ofderivatives and $3.7 million, net of tax, was recorded to other comprehensiveincome at June 30, 2007. This change has no impact on the income statement.

Werecord unrealized gains/(losses) on the ineffective portion of our gas hedgingactivities in “Fuel” under the Operating Revenue Deductions section of ourstatement of operations since all of our gas hedging activities are related tostabilizing fuel costs as part of our fuel procurement program and are notspeculative activities.

Thefollowing table sets forth “mark-to-market” pre-tax gains/(losses) from theineffective portion of our hedging activities for electric generation and theactual pre-tax gains/(losses) from the qualified portion of our hedgingactivities for settled contracts included in “Fuel” for each of the periodsended June 30:
|                          | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** | **Twelve months ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| **(In thousands)**  | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007**                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Ineffective  Portion** |       | $                                | 40         |                           | $          | —                            |       | $ | — |   | $ | (34 | ) | $ | — |   | $ | (1,547 | ) |
| ** **               |       |                             |       |                           |       |                              |       |   |   |   |   |   |   |
| **Qualified Portion**    |       | $                                | 216        |                           | $          | (132                              | )          | $ | 52 |   | $ | 805 |   | $ | 567 |   | $ | 4,903 |   |

 

Wealso enter into fixed-price forward physical contracts for the purchase ofnatural gas, coal and purchased power. These contracts are not subject to thefair value accounting of FAS 133 because they are considered to be normalpurchases. We have instituted a process to determine if any future executed contractsthat otherwise qualify for the normal purchases exception contain a priceadjustment feature and will account for these contracts accordingly.

Asof July 27, 2007, 91% of our anticipated volume of natural gas usage for ourelectric operations for the remainder of year 2007 is hedged, either throughphysical or financial contracts, 

14

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at an average price of $6.393 per Dekatherm (Dth). In addition, thefollowing volumes and percentages of our anticipated volume of natural gasusage for our electric operations for the next six years are hedged at thefollowing average prices per Dth:
| Year | ** ** | **% Hedged** | ** ** | **Dth Hedged** | ** ** | **Average Price** | ** ** |
|------|------------|-------------------|------------|---------------------|------------|------------------------|------------|
| 2008 |       | 82                | %          | 7,826,000           |       | $                      | 6.852      |   |
| 2009 |       | 45                | %          | 4,696,000           |       | $                      | 6.060      |   |
| 2010 |       | 39                | %          | 3,696,000           |       | $                      | 5.422      |   |
| 2011 |       | 40                | %          | 3,696,000           |       | $                      | 5.422      |   |
| 2012 |       | 13                | %          | 1,200,000           |       | $                      | 7.295      |   |
| 2013 |       | 13                | %          | 1,200,000           |       | $                      | 7.295      |   |

 

*Gas*

We attempt to mitigate our natural gas price risk for our gas segmentby a combination of (1) injecting natural gas into storage during theoff-heating season months, (2) purchasing physical forward contracts and (3)purchasing financial derivative contracts. As of July 27, 2007, we have 49% ofour expected upcoming winter heating season usage (November 2007 through March2008) hedged with physical storage, physical forward contracts and withfinancial derivative contracts. The average price of these hedges is $5.625 perDth including an estimated basis calculation. We target to have 95% of ourstorage capacity full by November 1 for the upcoming winter heating season. Asof July 27, 2007, we have 0.9 million Dths in storage on the three pipelinesthat serve our customers. This represents 44% of our storage capacity leaving1.0 million Dths to be injected into storage by November 1, 2007 to meet our95% target. Our long-term hedge positions for gas purchased for resale arestill in the development process. A purchased gas adjustment (PGA) clause isincluded in our rates for our gas segment operations, therefore, we mark tomarket any unrealized gains or losses and any realized gains or losses relatingto financial derivative contracts to a regulatory asset or regulatory liabilityaccount on our balance sheet.

**Note 7– Financing**

On March 26, 2007, EDE issued $80 million principalamount of First Mortgage Bonds, 5.875% Series due 2037. The net proceeds of$79.1 million, less $0.4 million of legal and other financing fees, were addedto our general funds and used to pay down short-term indebtedness incurred as aresult of our on-going construction program.

On July 15, 2005, we entered into a $150 millionunsecured revolving credit facility until July 15, 2010. Borrowings (other thanthrough commercial paper) are at the bank’s prime commercial rate or LIBOR plus100 basis points based on our current credit ratings and the pricing schedulein the line of credit facility. On March 14, 2006, we entered into the FirstAmended and Restated Unsecured Credit Agreement which amends and restates the$150 million unsecured revolving credit facility. The principal amount of thecredit facility was increased to $226 million, with the additional $76 millionallocated to support a letter of credit issued in connection with ourparticipation in the Plum Point Energy Station project. This extra $76 millionof availability reduces over a four year period in line with the amount ofconstruction expenditures we owe for Plum Point Unit 1 and was $55.5 million asof July 1, 2007. The unallocated credit facility is used for working capital,general corporate purposes and to back-up our use of commercial paper. Thisfacility requires our total indebtedness (which does not include our notepayable to the securitization trust) to be less than 62.5% of our totalcapitalization at the end of each fiscal quarter and our EBITDA (defined as netincome plus interest, taxes, depreciation and amortization) to be at least twotimes our interest charges (which includes interest on the note payable to thesecuritization trust) for the trailing four fiscal quarters at the end of eachfiscal quarter. Failure to maintain these ratios will result in an event ofdefault under the credit facility and will prohibit us from borrowing fundsthereunder. As of June 30, 2007, we are in compliance with these ratios. Thiscredit facility is also subject to cross-default if we default on in excess of$10 million in the aggregate on our other indebtedness. This arrangement doesnot serve to legally restrict the use of our cash in the normal 

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courseof operations. There were no outstanding borrowings under this agreement atJune 30, 2007, however, $49.9 million of the availability thereunder was usedat such date to back up our outstanding commercial paper.

**Note 8– Commitments andContingencies**

We are a party to various claims and legalproceedings arising out of the normal course of our business. Managementregularly analyzes this information, and has provided accruals for anyliabilities, in accordance with the guidelines of Statement of FinancialAccounting Standards SFAS 5, “Accounting for Contingencies” (FAS 5). In theopinion of management, it is not probable, given the company’s defenses, thatthe ultimate outcome of these claims and lawsuits will have a material adverseaffect upon our financial condition, or results of operations or cash flows.

**Coal, Natural Gas and Transportation Contracts**

We have entered into long and short-term agreementsto purchase coal and natural gas for our energy supply and natural gasoperations. Under these contracts, the natural gas supplies are divided intofirm physical commitments and derivatives that are used to hedge futurepurchases. The firm physical gas and transportation commitments total $52.0million for July 1, 2007 through June 30, 2008, $60.6 million for July 1, 2008through June 30, 2010, $48.3 million for July 1, 2010 through June 30, 2012 and$83.5 million for July 1, 2012 and beyond. In the event that this gas cannot beused at our plants, the gas would be liquidated at market price.

We have coal supply agreements and transportationcontracts in place to provide for the delivery of coal to the plants. Thesecontracts are written with Force Majeure clauses that enable us to reducetonnages or cease shipments under certain circumstances or events. Theseinclude mechanical or electrical maintenance items, acts of God, war orinsurrection, strikes, weather and other disrupting events. This reduces therisk we have for not taking the minimum requirements of fuel under thecontracts. The minimum requirements are $25.6 million for July 1, 2007 throughJune 30, 2008, $36.3 million for July 1, 2008 through June 30, 2010 and $3.6million for July 1, 2010 through June 30, 2012.

**Purchased Power**

We currently supplement our on-system generatingcapacity with purchases of capacity and energy from other utilities in order tomeet the demands of our customers and the capacity margins applicable to usunder current pooling agreements and National Electric Reliability Council(NERC) rules.

We have contracted with Westar Energy for thepurchase of capacity and energy through May 31, 2010. Commitments under thiscontract total approximately $47.2 million through May 31, 2010.

We also have a long term agreement for the purchaseof capacity from the Plum Point Energy Station, a new 665-megawatt, coal-firedgenerating facility which will be built near Osceola, Arkansas. Constructionbegan in the spring of 2006 with completion scheduled for 2010. We have theoption to convert the 50 megawatts covered by the purchased power agreementinto an ownership interest in 2015. Commitments under this contract totalapproximately $48.0 million through June 30, 2015.

**New Construction**

On March 14, 2006, we entered into contracts topurchase an undivided interest in 50 megawatts of the Plum Point Energy Station’snew 665-megawatt, coal-fired generating facility which will be built nearOsceola, Arkansas. The estimated cost is approximately $103 million in costs,including AFUDC. In addition, we entered into an agreement with Kansas CityPower & Light (KCP&L) on June 13, 2006 to purchase an undividedownership interest in the proposed coal-fired Iatan 2. We will own 12%, orapproximately 100 megawatts, of the proposed 850-megawatt unit. 

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Construction began in the spring of 2006 with completion scheduled for2010. We expect our share of the Iatan 2 costs will range from approximately $183.6million to $200.5 million, excluding AFUDC.

**Leases**

On June 25, 2007, we entered into a 20-yearpurchased power agreement with Cloud County Windfarm, LLC, owned by HorizonWind Energy, Houston, Texas. The agreement provides for a 20-year term commencingwith the commercial operation date, which is expected to be about January 1,2009. We will begin taking delivery of the energy at that time. Pursuant to theterms of the agreement, we will purchase all of the output from theapproximately 100-megawatt Meridian Way Wind Farm owned by Cloud CountyWindfarm, LLC. We do not own any portion of the windfarm. Annualpayments are contingent upon output of the facility and can range from zero toa maximum of approximately $14.6 million based on a 20-year average cost.

On December 10, 2004, we entered into a 20-yearcontract with Elk River Windfarm, LLC to purchase the energy generated at the150-megawatt Elk River Windfarm located in Butler County, Kansas. We havecontracted to purchase approximately 550,000 megawatt-hours of energy per year,or approximately 10% of our annual supply under the contract, which wasdeclared commercial on December 15, 2005. We do not own any portion of thewindfarm. Payments for wind energy from the Elk River Windfarm are contingent uponoutput of the facility. Annual payments can run from zero to a maximum ofapproximately $16.9 million based on a 20-year average cost.

Payments for these wind agreements are recorded aspurchased power expenses, and, because of the contingent nature of thesepayments, are not included in the operating lease obligations shown below.

We also currently haveshort-term operating leases for two unit trains to meet coal delivery demandsand garage and office facilities for our electric segment and five servicecenter properties for our gas segment. In addition we have a five-year capitallease for telephone equipment.

Our lease obligations overthe next five years are as follows:
| (In thousands)                          | ** ** | **Capital Leases** | ** ** |
|----------------------------------------------|------------|-------------------------|------------|
| 2007                                         |       | $                       | 288        |   |
| 2008                                         |       | 288                     |       |
| 2009                                         |       | 288                     |       |
| 2010                                         |       | 99                      |       |
| 2011                                         |       | 1                       |       |
| Thereafter                                   |       | —                  |       |
| Total minimum  payments                      |       | $                       | 964        |   |
| Less amount  representing maintenance        |       | 322                     |       |
| Net minimum  lease payments                  |       | 642                     |       |
| Less amount  representing interest           |       | 65                      |       |
| Present value of net  minimum lease payments |       | $                       | 577        |   |

 
| (In thousands)    | ** ** | **Operating Leases** | ** ** |
|------------------------|------------|---------------------------|------------|
| 2007                   |       | $                         | 1,529      |   |
| 2008                   |       | 1,230                     |       |
| 2009                   |       | 286                       |       |
| 2010                   |       | 294                       |       |
| 2011                   |       | 164                       |       |
| Thereafter             |       | 755                       |       |
| Total minimum payments |       | 4,258                     |       |
|                        |            |                           |            |  |

 

The accumulated amount ofamortization for our capital leases was $0.2 million at June 30, 2007.

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**Environmental Matters**

We are subject to various federal, state, and locallaws and regulations with respect to air and water quality and with respect tohazardous and toxic materials and wastes, including their identification,transportation, disposal, record-keeping and reporting, including asbestos, aswell as other environmental matters. We believe that our operations are incompliance with present laws and regulations.

**Electric Segment**

*Air.* The 1990 Amendments to the Clean Air Act,referred to as the 1990 Amendments, affect the Asbury, Riverton, State Line andIatan Power Plants and Units 3 and 4 (the FT8 peaking units) at the EmpireEnergy Center. The 1990 Amendments require affected plants to meet certainemission standards, including maximum emission levels for sulfur dioxide (SO2)and nitrogen oxides (NOx). The Asbury Plant became an affected unit under the1990 Amendments for SO2 on January 1, 1995 and for NOx as a Group 2cyclone-fired boiler on January 1, 2000. The Iatan Plant became an affectedunit for both SO2 and NOx on January 1, 2000. The Riverton Plant became anaffected unit for NOx in November 1996 and for SO2 on January 1, 2000. TheState Line Plant became an affected unit for SO2 and NOx on January 1, 2000.Units 3 and 4 at the Empire Energy Center became affected units for both SO2and NOx in April 2003. The new Riverton Unit 12 became an affected unit inJanuary 2007.

SO2 Emissions. Under the 1990 Amendments, the amount ofSO2 an affected unit can emit is regulated. Each existing affected unit hasbeen awarded a specific number of emission allowances, each of which allows theholder to emit one ton of SO2. Utilities covered by the 1990 Amendments musthave emission allowances equal to the number of tons of SO2 emitted during agiven year by each of their affected units. Allowances may be traded betweenplants or utilities or “banked” for future use. A market for the trading ofemission allowances exists on the Chicago Board of Trade. The EnvironmentalProtection Agency (EPA) withholds annually a percentage of the emissionallowances awarded to each affected unit and sells those emission allowancesthrough a direct auction. We receive compensation from the EPA for the sale ofthese withheld allowances.

Our Asbury, Riverton and Iatan plants burn a blendof low sulfur Western coal (Powder River Basin) and higher sulfur blend coaland petroleum coke, or burn 100% low sulfur Western coal. In addition,tire-derived fuel (TDF) is used as a supplemental fuel at the Asbury Plant. TheRiverton Plant can also burn natural gas as its primary fuel. The State LinePlant, the Energy Center Units 3 and 4 and the new Riverton Unit 12 aregas-fired facilities and do not receive SO2 allowances. In the near term,annual allowance requirements for the State Line Plant, the Energy Center Units3 and 4 and Riverton Unit 12, which are not expected to exceed 20 allowancesper year, will be transferred from our inventoried bank of allowances. In 2006,the combined actual SO2 allowance need for all affected plant facilitiesexceeded the number of allowances awarded to us by the EPA, therefore, as ofDecember 31, 2006, we had 31,000 banked SO2 allowances as compared to 41,000 atDecember 31, 2005. Based on current SO2 allowance usage projections, we will needto construct a scrubber at Asbury or purchase additional SO2 allowancessometime around 2012.

On July 14, 2004, we filed an application with theMPSC seeking an order authorizing us to implement a plan for the management,sale, exchange, transfer or other disposition of our SO2 emission allowancesissued by the EPA. On March 1, 2005, the MPSC approved a Stipulation andAgreement granting us authority to manage our SO2 allowance inventory inaccordance with our SO2 Allowance Management Policy (SAMP). The SAMP allows usto swap banked allowances for future vintage allowances and/or monetary valueand, in extreme market conditions, to sell SO2 allowances outright for monetaryvalue. The Stipulation and Agreement became effective March 11, 2005, although wehave not yet swapped or sold any allowances.

SO2 emissions will be further regulated as describedin the Clean Air Interstate Rule section below.

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NOx Emissions. The Asbury, Iatan, State Line, EnergyCenter and Riverton Plants are each in compliance with the NOx limitsapplicable to them under the 1990 Amendments as currently operated.

The Asbury Plant received permission from theMissouri Department of Natural Resources (MDNR) to burn TDF at a maximum rateof 2% of total fuel input. During 2006, approximately 5,794 tons of TDF wereburned. This is equivalent to 579,400 discarded passenger car tires.

Under the MDNR’s Missouri NOx Rule, our Iatan, Asbury,State Line and Energy Center facilities, like other facilities in WesternMissouri, are generally subject to a maximum NOx emission rate of 0.35lbs/mmBtu. However, facilities which burn at least 100,000 passenger tireequivalents of TDF per year, including our Asbury Plant, are subject to ahigher NOx emission limit of 0.68 lbs/mmBtu. All of our plants currently meetthe required emission limits and additional NOx controls are not required.

NOx is further regulated as described in the CleanAir Interstate Rule below.

Clean Air Interstate Rule (CAIR)

The EPA issuedits final CAIR on March 10, 2005. CAIR governs NOx and SO2 emissions fromfossil fueled units greater than 25 megawatts and will affect 28 states,including Missouri, where our Asbury, Energy Center, State Line and IatanPlants are located and Arkansas where the future Plum Point Energy Station willbe located.

The CAIR is notdirected to specific generation units, but instead, requires the states(including Missouri and Arkansas) to develop State Implementation Plans (SIPs)to comply with specific NOx and SO2 state-wide annual budgets. Missouri andArkansas have finalized their respective regulations and have submitted theirSIPs to the EPA for approval. Until these SIPs are approved by the EPA, wecannot definitively determine the allowed emissions of NOx and SO2 for theAsbury, Energy Center, State Line and Iatan Plants in Missouri or the PlumPoint Energy Station in Arkansas. However, based on the submitted SIPs, itappears we will have excess NOx allowances.

In order to help meet anticipated CAIR requirementsand to meet air permit requirements for Iatan Unit 2, we are installingpollution control equipment on Iatan Unit 1 which will be completed around theend of 2008. This equipment includes a Selective Catalytic Reduction (SCR)system, a Flue Gas Desulphurization (FGD) system and a baghouse, with our shareof the capital cost estimated at $45 million, excluding AFUDC. Of this amount,approximately $3.9 million was incurred in 2006. Approximately $15.9 million in2007 and $24.6 million in 2008 are included in our current capital expendituresbudget. These projects were included as part of our Experimental RegulatoryPlan approved by the MPSC.

Also to help meet anticipated CAIR requirements, weare constructing an SCR at Asbury. We expect the SCR to be in service aroundJanuary of 2008. We have awarded a contract and the SCR is under constructionand will be tied into the existing unit during our scheduled 2007 fall outage.Our current cost estimate for the SCR at Asbury is $30 million, which is alsoincluded in our current capital expenditures budget. This project was alsoincluded as part of our Experimental Regulatory Plan approved by the MPSC.

            Wealso expect that additional pollution control equipment to comply with CAIR maybecome economically justified at the Asbury Plant sometime prior to 2015 andmay include a FGD and a baghouse at an estimated capital cost of $100 million.At this time, we do not anticipate the installation of additional pollutioncontrol equipment at the Riverton Plant.

Clean Air Mercury Rule (CAMR)

On March 15,2005, the EPA issued the CAMR regulations for mercury emissions by power plantsunder the requirements of the 1990 Amendments to the Clean Air Act. The newmercury emission limits will go into effect January 1, 2010.

The CAMR is notdirected to specific generation units, but instead, requires the states(including Missouri, Kansas and Arkansas) to develop SIPs to comply withspecific mercury state-

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wide annual budgets. Missouri, Kansas andArkansas have finalized their respective regulations and submitted their SIPsto the EPA. Until their SIPs are approved, we cannot definitively determine theallowed emissions for mercury for the Asbury, Energy Center, State Line andIatan Plants in Missouri, the Plum Point Energy Station in Arkansas or theRiverton Plant in Kansas. The proposed SIPs for all states include allowancetrading programs for mercury that could allow compliance without additionalcapital expenditures.

Based oninitial testing and the submitted SIPs, we believe we will be granted enoughmercury allowances on January 1, 2010 in aggregate to meet our anticipatedmercury emissions. We are adding mercury analyzers at Asbury and Rivertonduring 2007 in order to verify our mercury emissions and to meet the compliancedate of January 1, 2009 for mercury analyzers and the mercury emissioncompliance date of January 1, 2010.

*Water.* We operate under the Kansas and MissouriWater Pollution Plans that were implemented in response to the Federal WaterPollution Control Act Amendments of 1972. The Asbury, Iatan, Riverton, EnergyCenter and State Line plants are in compliance with applicable regulations andhave received discharge permits and subsequent renewals as required. The StateLine permit was renewed in May 2007. The Energy Center permit was renewed inSeptember 2005 and the Asbury Plant permit was renewed in December 2005.

The Riverton Plant was affected by final regulationsfor Cooling Water Intake Structures issued under the Clean Water Act Section316(b) Phase II. The regulations became final on February 16, 2004 and requirethe submission of a Comprehensive Demonstration Study with the permit renewalin 2008. A Proposal for Information Collection (PIC) has been approved by theKansas Department of Health and Environment (KDHE). Aquatic sampling commencedin April 2006 in accordance with the PIC and will be completed in August 2007.On January 25, 2007, the United States Court of Appeals for the Second Circuitremanded key sections of the EPA’s February 16, 2004 regulations. On July 9,2007, the EPA suspended the regulation and is expected to revise and re-proposethe regulation in 2008. We will be engaged with the EPA in its revisionprocess. Data collection will continue under the PIC and will be expanded asneeded to limit increased costs, if any, due to the EPA’s suspension andrevision of the regulation. The permit renewal application will be prepared andsubmitted as scheduled following KDHE guidance. At this time, we do not expectcosts associated with compliance to be material.

*Other.*Under Title V of the 1990 Amendments, we mustobtain site operating permits for each of our plants from the authorities inthe state in which the plant is located. These permits, which are valid forfive years, regulate the plant site’s total emissions; including emissions fromstacks, individual pieces of equipment, road dust, coal dust and otheremissions. We have been issued permits for Asbury, Iatan, Riverton, State Lineand the Energy Center Plants. We submitted the required renewal applicationsfor the State Line and Energy Center Title V permits in 2003 and the AsburyTitle V permit in 2004 and will operate under the existing permits until theMDNR issues the renewed permits. A Compliance Assurance Monitoring (CAM) planis required by the renewed permit for Asbury. We estimate that the capitalcosts associated with the CAM plan will not exceed $2 million.

A new air permit was issued for the Iatan GeneratingStation on January 31, 2006. The new permit covers the entire Iatan GeneratingStation and includes the existing Unit No. 1 and the to-be-constructed IatanUnit No. 2. The new permit limits Unit No. 1 to a maximum of 6,600 MMBtu perhour of heat input. The 6,600 MMBtu per hour heat input limit is in effectuntil the new SCR, scrubber, and baghouse are completed, currently estimated tobe late in the fourth quarter of 2008.

**Gas Segment**

The acquisition of Missouri Gas involved theproperty transfer of two former manufactured gas plant (MGP) sites previouslyowned by Aquila, Inc. and its predecessors. Site #1 is listed in the MDNRRegistry of Confirmed Abandoned or Uncontrolled Hazardous Waste Disposal Sitesin Missouri (the MDNR Registry). Site #2 has received a letter of no furtheraction from the MDNR. We are expanding our existing service center at Site #1in Chillicothe, Missouri.

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A Change of Use notification for the buildingaddition has been coordinated with the MDNR to include the removal and disposalof contaminated soil discovered during the site excavation. The completedproject will also include paving the remaining portion of the property. It isanticipated that the removal of all excavated soil and the addition of a newasphalt surface replacing the existing gravel will result in a lowering of theregistry assigned risk for this site.

**Note 9 –Pension and Other Postretirement Benefits**

Thecomponents of our net periodic cost of pension (expensed and capitalized) andother postretirement benefits are summarized below:
|                                         | ** ** | **Pension Benefits**                           | ** ** | **Other Postretirement Benefits** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                              | ** ** | **Three months ended June 30,** | ** ** |
| **(in  thousands)**                     | ** ** | **2007**                                            | ** ** | **2006**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                            |       | $                                                   | 875        |                                        | $          | 892 |   | $ | 525 |   | $ | 501 |   |
| Interest cost                           |       | 2,044                                               |       | 1,820                                       |       | 975 |   | 836 |   |
| Expected return  on plan assets         |       | (2,588                                              | )          | (2,279                                      | )          | (825 | ) | (680 | ) |
| Amortization of  prior service cost (1) |       | 94                                                  |       | 100                                         |       | (125 | ) | (100 | ) |
| Amortization of  net actuarial loss (1) |       | 650                                                 |       | 825                                         |       | 300 |   | 600 |   |
| Net periodic  benefit cost              |       | $                                                   | 1,075      |                                        | $          | 1,358 |   | $ | 850 |   | $ | 1,157 |   |
| Regulatory adjustments  (2)             |       | 657                                                 |       | (237                                        | )          | 474 |   | 99 |   |
| Adjusted pension and  OPEB cost         |       | $                                                   | 1,732      |                                        | $          | 1,121 |   | $ | 1,324 |   | $ | 1,256 |   |

 
|                                         | ** ** | **Pension Benefits**                         | ** ** | **Other Postretirement Benefits** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                              | ** ** | **Six months ended June 30,** | ** ** |
| **(in thousands)**                 | ** ** | **2007**                                          | ** ** | **2006**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                            |       | $                                                 | 1,750      |                                        | $          | 1,767 |   | $ | 1,050 |   | $ | 1,001 |   |
| Interest cost                           |       | 4,087                                             |       | 3,570                                       |       | 1,950 |   | 1,661 |   |
| Expected return  on plan assets         |       | (5,175                                            | )          | (4,479                                      | )          | (1,650 | ) | (1,355 | ) |
| Amortization of  prior service cost (1) |       | 188                                               |       | 200                                         |       | (250 | ) | (200 | ) |
| Amortization of  net actuarial loss (1) |       | 1,300                                             |       | 1,650                                       |       | 600 |   | 1,200 |   |
| Net periodic  benefit cost              |       | $                                                 | 2,150      |                                        | $          | 2,708 |   | $ | 1,700 |   | $ | 2,307 |   |
| Regulatory  adjustments (2)             |       | 1,314                                             |       | (511                                        | )          | 949 |   | 199 |   |
| Adjusted pension and  OPEB cost         |       | $                                                 | 3,464      |                                        | $          | 2,197 |   | $ | 2,649 |   | $ | 2,506 |   |

 
|                                         | ** ** | **Pension Benefits**                            | ** ** | **Other Postretirement Benefits** | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                              | ** ** | **Twelve months ended June 30,** | ** ** |
| **(in thousands)**                 | ** ** | **2007**                                             | ** ** | **2006**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                            |       | $                                                    | 3,385      |                                        | $          | 3,489 |   | $ | 1,915 |   | $ | 1,971 |   |
| Interest cost                           |       | 7,991                                                |       | 6,804                                       |       | 3,714 |   | 3,023 |   |
| Expected return  on plan assets         |       | (10,208                                              | )          | (8,330                                      | )          | (3,076 | ) | (2,523 | ) |
| Amortization of  prior service cost (1) |       | 434                                                  |       | 444                                         |       | (512 | ) | (509 | ) |
| Amortization of  transition obligation  |       | —                                               |       | —                                      |       | — |   | 534 |   |
| Amortization of  net actuarial loss (1) |       | 2,970                                                |       | 3,158                                       |       | 1,798 |   | 1,970 |   |
| Net periodic  benefit cost              |       | $                                                    | 4,572      |                                        | $          | 5,565 |   | $ | 3,839 |   | $ | 4,466 |   |
| Regulatory  adjustments (2)             |       | 1,839                                                |       | (1,209                                      | )          | 1,319 |   | 397 |   |
| Adjusted pension and  OPEB cost         |       | $                                                    | 6,411      |                                        | $          | 4,356 |   | $ | 5,158 |   | $ | 4,863 |   |

 

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(1) Amortized from our regulatory asset recorded upon adoption of FAS158.

(2) Reflects the effect ofregulatory accounting as discussed in Note 4.

Basedon the performance of our pension plan assets through January 1, 2006 and 2007,we were not required under the Employee Retirement Income Security Act of 1974(ERISA) to fund any additional minimum ERISA amounts with respect to 2006 or2007.

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Weexpect to make other postretirement benefit contributions of $4.0 million in2007, of which $2.0 million has been made as of June 30, 2007.

**Note 10 – Stock-BasedAwards and Programs**

We recognized the following amounts in compensationexpense and tax benefits for all of our stock-based awards and programs for theapplicable periods ended June 30:
|                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** | **Twelve Months Ended** | ** ** |
|----------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| **(in thousands)**    | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007**                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                 |       |                             |       |                           |       |                              |       |   |   |   |   |   |   |
| **Compensation  Expense**  |       | $                                | 513        |                           | $          | 366                               |       | $ | 1,266 |   | $ | 938 |   | $ | 1,997 |   | $ | 1,660 |   |
| **Tax Benefit Recognized** |       | 187                              |       | 130                            |       | 465                               |       | 338 |   | 726 |   | 594 |   |
|                            |            |                                  |            |                                |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Activity for our various stock plans for the sixmonths ended June 30, 2007 is summarized below:

**Performance-BasedRestricted Stock Awards**

Thefair value of the estimated shares to be awarded under each grant of restrictedstock was estimated on the date of grant using a lattice-based option valuationmodel with the assumptions noted in the following table:
|                                          | ** ** | **2007**        | ** ** | **2006**        | ** ** |
|------------------------------------------|------------|-----------------|------------|-----------------|------------|
| Risk-free  interest rate                 |       | 5.09%  to 4.88% |       | 4.60%  to 4.54% |       |
| Expected  volatility of Empire stock     |       | 16.6%           |       | 15.2%           |       |
| Expected  volatility of peer group stock |       | 18.9%           |       | 19.8%           |       |
| Expected  dividend yield on Empire stock |       | 5.55%           |       | 5.80%           |       |
| Expected  forfeiture rates               |       | 3%              |       | 3%              |       |
| Plan cycle                               |       | 3  years        |       | 3  years        |       |
| EDE percentile  performance              |       | 25th            |       | 33rd            |       |
| Fair value  percentage                   |       | 107.73%         |       | 108.13%         |       |
| Grant date                               |       | 1/31/2007       |       | 2/01/2006       |       |
| Grant date fair value  per share         |       | $25.65          |       | $24.04          |       |

 

Non-vestedrestricted stock awards (based on target number) as of June 30, 2007 and 2006and changes during the six months ended June 30, 2007 and 2006 were as follows:
| ** **                   | ** ** | **YTD 2007**          | ** ** | **YTD 2006**                                     | ** ** |
|------------------------------|------------|----------------------------|------------|-------------------------------------------------------|------------|
| ** **                   | ** ** | **Number  of shares** | ** ** | **Weighted Average  Grant Date Price** | ** ** | **Number  of shares** | ** ** | **Weighted Average  Grant Date Price** | ** ** |
|                         |       |                       |       |                                                  |       |   |   |   |   |
| **Nonvested  at January 1,** |       | 38,800                     |       | $                                                     | 22.25      |   | 40,300 |   | $ | 20.76 |   |
| **Granted**                  |       | 17,700                     |       | $                                                     | 23.81      |   | 13,600 |   | $ | 22.23 |   |
| **Awarded**                  |       | (7,598                     | )          | $                                                     | 21.79      |   | (7,954 | ) | $ | 18.25 |   |
| **Not  Awarded**             |       | (5,502                     | )          |                                                  |       | (7,146 | ) |   |   |
| ** **                   |       |                       |       |                                                  |       |   |   |   |   |
| **Nonvested at June 30,**    |       | 43,400                     |       | $                                                     | 23.02      |   | 38,800 |   | $ | 22.25 |   |

 

At June 30, 2007, there was$0.5 million of total unrecognized compensation cost related to estimatedoutstanding awards. This cost will be recognized over the outstanding yearsremaining in the vesting period.

22

----

**Stock Options**

A summary of option activity under the plan duringthe six months ended June 30, 2007 and 2006 is presented below:
|                              | ** ** | **YTD 2007** | ** ** | **YTD 2006** | ** ** |
|------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                   | ** ** | ** **        | ** ** | **Weighted**      | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                   | ** ** | ** **        | ** ** | **Average**       | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                   | ** ** | ** **        | ** ** | **Exercise**      | ** ** | ** ** | ** ** | **Exercise** | ** ** |
| ** **                   | ** ** | **Options**       | ** ** | **Price**         | ** ** | **Options** | ** ** | **Price** | ** ** |
| Outstanding at  December 31, |       | 135,000           |       | $                 | 22.21      |   | 142,500 |   | $ | 20.84 |   |
| Granted                      |       | 64,200            |       | $                 | 23.81      |   | 41,700 |   | $ | 22.23 |   |
| Exercised                    |       | (50,000           | )          | $                 | 21.79      |   | (49,200 | ) | $ | 18.25 |   |
| Outstanding at June 30,  (1) |       | 149,200           |       | $                 | 23.04      |   | 135,000 |   | $ | 22.21 |   |

 

----

(1) 2007 includes4,200 shares at weighted average price of $21.79, which are vested andexercisable. All others are non-vested.

The aggregate intrinsic value at June 30, 2007 wasless than $0.1 million. The aggregate intrinsic value at June 30, 2006 was zerobecause none of the outstanding options were in the money. The intrinsic valueof the unexercised options is the difference between Empire’s closing stockprice on the last day of the quarter and the exercise price multiplied by thenumber of in the money options had all option holders exercised their option onthe last day of the quarter.

The range of exercise prices for the optionsoutstanding at June 30, 2007 was $21.79 to $23.81. The weighted-averageremaining contractual life of outstanding options at June 30, 2007 and 2006 was8.1 years and 8.6 years, respectively. As of June 30, 2007, there was $0.4million of total unrecognized compensation expense related to the non-vestedoptions granted under the plan. That cost will be recognized over a period of 1to 3 years.
|                                            | ** ** | **Stock Options** | ** ** |
|--------------------------------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **2007**               | ** ** | **2006** | ** ** |
| **Weighted  average fair value of grants** |       | $                      | 2.38       |   | $ | 1.65 |   |
| **Risk-free  interest rate**               |       | 4.68                   | %          | 3.27 | % |
| **Dividend  yield**                        |       | 5.33                   | %          | 6.16 | % |
| **Expected  volatility**                   |       | 16.13                  | %          | 18.14 | % |
| **Expected  life in months**               |       | 60                     |       | 60 |   |
| **Grant Date**                             |       | 1/31/07                |       | 2/1/06 |   |
|                                            |            |                        |            |  |  |  |  |

 

**Employee Stock Purchase Plan**

Our Employee Stock Purchase Plan (ESPP) permits thegrant of options to purchase common stock to eligible employees at 90% of thelower of market value at date of grant or at date of exercise. The lookbackfeature of this plan is ultimately valued at 90% of the lookback feature valuedunder the Black-Scholes methodology plus 10% of the maximum subscription price.As of June 30, 2007, there were 480,812 shares available for issuance in thisplan. The following table has been updated with shares issued during the secondquarter.
|                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Subscriptions  outstanding at June 30 |       | 42,578   |       | 41,213   |       |
| Maximum  subscription price           |       | $        | 21.23      | (1)      | $          | 20.05 |   |
| Shares of stock  issued               |       | 37,686   |       | 39,322   |       |
| Stock issuance price                  |       | $        | 20.05      |     | $          | 19.62 |   |

 

----

(1)Stock will be issued on the closing date of the purchase period, which runsfrom June 1, 2007 to May 31, 2008.

23

----

Assumptionsfor valuation of these shares using the Black-Scholes methodology are shown inthe table below.
|                                            | ** ** | **ESPP**                       | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **Six months ended** | ** ** |
| ** **                                 | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| ** **                                 |       |                           |       |   |   |
| **Weighted  average fair value of grants** |       | $                              | 3.40       |   | $ | 3.19 |   |
| **Risk-free  interest rate**               |       | 4.98                           | %          | 5.02 | % |
| **Dividend  yield**                        |       | 5.43                           | %          | 5.75 | % |
| **Expected  volatility**                   |       | 18.01                          | %          | 18.30 | % |
| **Expected  life in months**               |       | 12                             |       | 12 |   |
| **Grant Date**                             |       | 6/1/07                         |       | 6/1/06 |   |
|                                            |            |                                |            |  |  |  |  |

 

**Note 11 - Regulated -Other Operating Expense**

Thefollowing table sets forth the major components comprising “Regulated – other”under “Operating Revenue Deductions” on our consolidated statements ofoperations for all periods presented ended June 30:
| ** **                                         | ** ** | **Three  Months  Ended** | ** ** | **Three  Months  Ended** | ** ** | **Six  Months  Ended** | ** ** | **Six  Months  Ended** | ** ** | **Twelve  Months  Ended** | ** ** | **Twelve  Months  Ended** | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|------------------------|------------|------------------------|------------|---------------------------|------------|---------------------------|------------|
| **(in thousands)**                            | ** ** | **2007**                 | ** ** | **2006**                 | ** ** | **2007**               | ** ** | **2006**               | ** ** | **2007**                  | ** ** | **2006**                  | ** ** |
| Electric  transmission and distribution expense    |       | $                        | 2,314      |                     | $          | 2,027                  |       | $                      | 4,379      |                      | $          | 3,987                     |       | $ | 8,755 |   | $ | 8,289 |   |
| Natural gas  transmission and distribution expense |       | 425                      |       | 123                      |       | 868                    |       | 123                    |       | 1,788                     |       | 123                       |       |
| Power operation  expense (other than fuel)         |       | 2,625                    |       | 2,445                    |       | 4,984                  |       | 4,609                  |       | 9,976                     |       | 9,740                     |       |
| Customer  accounts and assistance expense          |       | 2,222                    |       | 1,929                    |       | 4,340                  |       | 3,685                  |       | 8,933                     |       | 7,214                     |       |
| Employee pension  expense (1)                      |       | 1,574                    |       | 948                      |       | 3,390                  |       | 1,794                  |       | 5,790                     |       | 2,888                     |       |
| Employee  healthcare plan (1)                      |       | 2,428                    |       | 1,813                    |       | 4,205                  |       | 3,670                  |       | 8,199                     |       | 7,266                     |       |
| General office  supplies and expense               |       | 2,602                    |       | 1,960                    |       | 5,168                  |       | 3,717                  |       | 9,405                     |       | 7,304                     |       |
| Administrative  and general expense                |       | 2,708                    |       | 2,673                    |       | 5,571                  |       | 4,965                  |       | 11,597                    |       | 9,096                     |       |
| Allowance for  uncollectible accounts              |       | 1,312                    |       | 632                      |       | 2,666                  |       | 869                    |       | 3,795                     |       | 1,755                     |       |
| Total                                              |       | $                        | 18,210     |                     | $          | 14,550                 |       | $                      | 35,571     |                      | $          | 27,419                    |       | $ | 68,238 |   | $ | 53,675 |   |

 

----

(1) Includeseffects of regulatory treatment for pension and other postretirement benefits,but does not include capitalized portion or amount deferred to a regulatoryasset.

**Note 12– Segment Information**

Weoperate our business as three segments: electric, gas and other. As part of our electric segment, we alsoprovide water service to three towns in Missouri. EDG is our wholly ownedsubsidiary formed to hold the Missouri Gas assets acquired from Aquila, Inc. onJune 1, 2006. The other segment consists of our businesses which areunregulated and include a 100% interest in Empire District Industries, Inc., asubsidiary for our fiber optics business and a 100% interest in Fast Freedom, Inc.,an Internet service provider.

Wesold our controlling 52% interest in Mid-America Precision Products (MAPP) onAugust 31, 2006. MAPP is a company that specializes in close-tolerance custommanufacturing for the aerospace, electronics, telecommunications and machineryindustries. In December 2006, we also sold our interest in Conversant, Inc., asoftware company that markets Customer Watch, an Internet-based customerinformation system software. For financial reporting purposes, both of thesebusinesses have been classified as a discontinued operation and are notincluded in our segment information.

24

----

Thetables below present information about the revenues, operating income, incomefrom continuing operations, capital expenditures and total assets of our businesssegments.
| ** **                                | ** ** | **For the quarter ended June 30,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                                    | ** ** |
| **(in thousands)**                   | ** ** | **Electric**                                                | ** ** | **Gas** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                      |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Statement  of Income Information**      |       |                                                        |       |   |   |   |   |   |   |   |   |
| Revenues                                  |       | $                                                           | 97,984     |   | $ | 8,438 |   | $ | 1,219 |   | $ | (99 | ) | $ | 107,542 |   |
| Operating income                          |       | 13,859                                                      |       | 97 |   | 152 |   |   |   | 14,108 |   |
| Income (loss)  from continuing operations |       | 6,592                                                       |       | (736 | ) | (22 | ) |   |   | 5,834 |   |
|                                      |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Capital Expenditures**                  |       | $                                                           | 40,149     |   | $ | 469 |   | $ | 1,118 |   |   |   | $ | 41,736 |   |
|                                           |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                | ** ** | **For the quarter ended June 30,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                                    | ** ** |
| **(in thousands)**                   | ** ** | **Electric**                                                | ** ** | **Gas** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Statement  of Income Information**      |       |                                                        |       |   |   |   |   |   |   |   |   |
| Revenues                                  |       | $                                                           | 89,170     |   | $ | 1,627 |   | $ | 1,041 |   | $ | (105 | ) | $ | 91,733 |   |
| Operating income  (loss)                  |       | 15,404                                                      |       | (48 | ) | 83 |   | — |   | 15,439 |   |
| Income (loss)  from continuing operations |       | 7,753                                                       |       | (369 | ) | 53 |   | — |   | 7,437 |   |
|                                      |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Capital Expenditures**                  |       | 23,861                                                      |       | 373 | (1) | 913 |   | — |   | 25,147 |   |
|                                           |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)  Does not include the acquisition of Missourigas operation.
| ** **                                | ** ** | **For the six months ended June 30,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                                            | ** ** |
| **(in thousands)**                   | ** ** | **Electric**                                                        | ** ** | **Gas** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| **Statement  of Income Information**      |       |                                                                |       |   |   |   |   |   |   |   |   |
| Revenues                                  |       | $                                                                   | 195,345    |   | $ | 36,028 |   | $ | 2,309 |   | $ | (200 | ) | $ | 233,482 |   |
| Operating income                          |       | 22,976                                                              |       | 2,702 |   | 314 |   |   |   | 25,992 |   |
| Income (loss)  from continuing operations |       | 9,436                                                               |       | 926 |   | (27 | ) |   |   | 10,335 |   |
|                                      |       |                                                                |       |   |   |   |   |   |   |   |   |
| **Capital Expenditures**                  |       | $                                                                   | 88,056     |   | $ | 733 |   | $ | 1,811 |   |   |   | $ | 90,600 |   |
|                                           |            |                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                | ** ** | **For the six months ended June 30,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                                            | ** ** |
| **(in thousands)**                   | ** ** | **Electric**                                                        | ** ** | **Gas** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| **Statement  of Income Information**      |       |                                                                |       |   |   |   |   |   |   |   |   |
| Revenues                                  |       | $                                                                   | 172,257    |   | $ | 1,627 |   | $ | 2,025 |   | $ | (193 | ) | $ | 175,716 |   |
| Operating income  (loss)                  |       | 24,636                                                              |       | (48 | ) | 145 |   | — |   | 24,733 |   |
| Income (loss)  from continuing operations |       | 9,802                                                               |       | (368 | ) | 85 |   | — |   | 9,519 |   |
|                                      |       |                                                                |       |   |   |   |   |   |   |   |   |
| **Capital Expenditures**                  |       | 51,286                                                              |       | 373 | (1) | 1,267 |   | — |   | 52,926 |   |
|                                           |            |                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

                                                                                                

25

----

 
| ** **                                | ** ** | **For the twelve months ended June 30,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                                               | ** ** |
| **(in thousands)**                   | ** ** | **Electric**                                                           | ** ** | **Gas** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                      |       |                                                                   |       |   |   |   |   |   |   |   |   |
| **Statement  of Income Information**      |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Revenues                                  |       | $                                                                      | 407,583    |   | $ | 59,547 |   | $ | 4,487 |   | $ | (398 | ) | $ | 471,219 |   |
| Operating income                          |       | 66,271                                                                 |       | 4,035 |   | 620 |   |   |   | 70,926 |   |
| Income (loss)  from continuing operations |       | 40,565                                                                 |       | 336 |   | (222 | ) |   |   | 40,679 |   |
|                                      |       |                                                                   |       |   |   |   |   |   |   |   |   |
| **Capital Expenditures**                  |       | $                                                                      | 152,100    | ** ** | $  | 1,356 | (1) | $ | 2,502 |   |   |   | $ | 155,958 |   |
|                                           |            |                                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)  Does not include the acquisition of Missourigas operation.
| ** **                                | ** ** | **For the twelve months ended June 30,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                                               | ** ** |
| **(in thousands)**                   | ** ** | **Electric**                                                           | ** ** | **Gas** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                      |       |                                                                   |       |   |   |   |   |   |   |   |   |
| **Statement  of Income Information**      |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Revenues                                  |       | $                                                                      | 376,636    |   | $ | 1,627 |   | $ | 4,002 |   | $ | (411 | ) | $ | 381,854 |   |
| Operating income                          |       | 59,988                                                                 |       | (48 | ) | 243 |   |   |   | 60,183 |   |
| Income (loss)  from continuing operations |       | 30,876                                                                 |       | (369 | ) | 128 |   |   |   | 30,635 |   |
|                                      |       |                                                                   |       |   |   |   |   |   |   |   |   |
| **Capital Expenditures**                  |       | $                                                                      | 81,700     |   | $ | 373 | (1) | $ | 2,712 |   |   |   | $ | 84,785 |   |
|                                           |            |                                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)  Does not include the acquisition of Missourigas operation.
| ** **                     | ** ** | **As of June 30, 2007** | ** ** |
|--------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**        | ** ** | **Electric**                                | ** ** | **Gas(1)** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Balance  Sheet Information** |       |                                        |       |   |   |   |   |   |   |   |   |
| Total assets                   |       | $                                           | 1,331,139  |   | $ | 118,795 |   | $ | 20,491 |   | $ | (85,086 | ) | $ | 1,385,339 |   |
|                                |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1) Includesgoodwill of $39,492

 
| ** **                     | ** ** | **As of December 31, 2006** | ** ** |
|--------------------------------|------------|-------------------------------------------------|------------|
| **(in thousands)**        | ** ** | **Electric**                                    | ** ** | **Gas(1)** | ** ** | **Other** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Balance  Sheet Information** |       |                                            |       |   |   |   |   |   |   |   |   |
| Total assets                   |       | $                                               | 1,248,591  |   | $ | 126,296 |   | $ | 21,659 |   | $ | (80,658 | ) | $ | 1,315,888 |   |
|                                |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1) Includesgoodwill of $39,323.

 

26

----

**Note 13– Discontinued Operations**

InAugust 2006, we sold our controlling 52% interest in MAPP. MAPP is a companythat specializes in close-tolerance custom manufacturing for the aerospace,electronics, telecommunications and machinery industries*.*In December 2006, we sold our 100% interest in Conversant, Inc., a softwarecompany that markets Customer Watch, an Internet-based customer informationsystem software. We have reported MAPP and Conversant’s results as discontinuedoperations. A summary of the components of gains or losses from discontinuedoperations for all periods reported as of June 30, follows:
| ** **                                               | ** ** | **For the three months ended June 30, 2006** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| **(in thousands)**                                  | ** ** | **MAPP**                                                                        | ** ** | **Conversant** | ** ** | **Total** | ** ** |
|                                                     |       |                                                                            |       |   |   |   |   |
| Revenues                                                 |       | $                                                                               | 3,331      |   | $ | 605 |   | $ | 3,936 |   |
| Expenses                                                 |       | 3,501                                                                           |       | 1,034 |   | 4,535 |   |
| Losses from discontinued operations before income  taxes |       | (170                                                                            | )          | (429 | ) | (599 | ) |
| Income tax                                               |       | 65                                                                              |       | 163 |   | 228 |   |
| Minority  interest                                       |       | 82                                                                              |       | — |   | 82 |   |
| Income tax –  minority interest                     |       | (31                                                                             | )          | — |   | (31 | ) |
| **Loss  from discontinued operations**                   | ** ** | **$**                                                                           | **(54**    | **)** | **$** | **(266** | **)** | **$** | **(320** | **)** |

 
| ** **                                               | ** ** | **For the six months ended June 30, 2006** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| **(in thousands)**                                  | ** ** | **MAPP**                                                                      | ** ** | **Conversant** | ** ** | **Total** | ** ** |
| ** **                                               |       |                                                                          |       |   |   |   |   |
| Revenues                                                 |       | $                                                                             | 7,023      |   | $ | 939 |   | $ | 7,962 |   |
| Expenses                                                 |       | 7,255                                                                         |       | 2,093 |   | 9,348 |   |
| Losses from discontinued operations before income  taxes |       | (232                                                                          | )          | (1,154 | ) | (1,386 | ) |
| Income tax                                               |       | 88                                                                            |       | 440 |   | 528 |   |
| Minority  interest                                       |       | 111                                                                           |       | — |   | 111 |   |
| Income tax –  minority interest                     |       | (42                                                                           | )          | — |   | (42 | ) |
| **Loss  from discontinued operations**                   | ** ** | **$**                                                                         | **(75**    | **)** | **$** | **(714** | **)** | **$** | **(789** | **)** |

 
| ** **                                                          | ** ** | **For the twelve months ended June 30, 2006** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **(in thousands)**                                             | ** ** | **MAPP**                                                                         | ** ** | **Conversant** | ** ** | **Total** | ** ** |
|                                                                |       |                                                                             |       |   |   |   |   |
| Revenues                                                            |       | $                                                                                | 18,602     |   | $ | 2,157 |   | $ | 20,759 |   |
| Expenses                                                            |       | 18,218                                                                           |       | 4,049 |   | 22,267 |   |
| Earnings (losses) from discontinued operations  before income taxes |       | 384                                                                              |       | (1,892 | ) | (1,508 | ) |
| Income tax                                                          |       | (146                                                                             | )          | 721 |   | 575 |   |
| Minority  interest                                                  |       | (182                                                                             | )          | — |   | (182 | ) |
| Income tax –  minority interest                                |       | 69                                                                               |       | — |   | 69 |   |
| **Gain  (loss) from discontinued operations**                       | ** ** | **$**                                                                            | **125**    | ** ** | **$** | **(1,171** | **)** | **$** | **(1,046** | **)** |

 
| ** **                                               | ** ** | **For the twelve months ended June 30, 2007** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **(in thousands)**                                  | ** ** | **MAPP**                                                                         | ** ** | **Conversant** | ** ** | **Total** | ** ** |
|                                                     |       |                                                                             |       |   |   |   |   |
| Revenues                                                 |       | $                                                                                | 1,904      |   | $ | 883 |   | $ | 2,787 |   |
| Expenses                                                 |       | 2,040                                                                            |       | 1,815 |   | 3,855 |   |
| Losses from discontinued operations before income  taxes |       | (136                                                                             | )          | (932 | ) | (1,068 | ) |
| Gain on disposal                                         |       | 272                                                                              |       | 555 |   | 827 |   |
| Income tax                                               |       | 52                                                                               |       | 355 |   | 407 |   |
| Minority  interest                                       |       | 65                                                                               |       | — |   | 65 |   |
| Income tax –  minority interest                     |       | (25                                                                              | )          | — |   | (25 | ) |
| **Gain  (loss) from discontinued operations**            | ** ** | **$**                                                                            | **228**    | ** ** | **$** | **(22** | **)** | **$** | **206** | ** ** |

 

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**Item2.  Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

**EXECUTIVE SUMMARY**

We operate our businesses asthree segments: electric, gas and other. The****EmpireDistrict Electric Company (EDE) is an operating public utility engaged in thegeneration, purchase, transmission, distribution and sale of electricity inparts of Missouri, Kansas, Oklahoma and Arkansas. As part of our electricsegment, we also provide water service to three towns in Missouri. The EmpireDistrict Gas Company (EDG) is our wholly owned subsidiary formed to hold theMissouri Gas assets acquired from Aquila, Inc. on June 1, 2006. It providesnatural gas distribution to customers in 44 communities in northwest, northcentral and west central Missouri. Our other segment includes investments incertain non-regulated businesses including fiber optics and Internet access.These businesses are held in our wholly-owned subsidiary, EDE Holdings, Inc.During the twelve months ended June 30, 2007, 86.5% of our gross operatingrevenues were provided from sales from our electric segment (including 0.4%from the sale of water), 12.6% from the sale of gas and 0.9% from ournon-regulated businesses.

In August 2006, we sold ourcontrolling 52% interest in Mid-America Precision Products (MAPP), whichspecializes in close-tolerance custom manufacturing. In December 2006, we soldour 100% interest in Conversant, Inc., a software company that markets CustomerWatch, an Internet-based customer information system software. For financialreporting purposes, MAPP and Conversant have been classified as discontinuedoperations and are not included in our segment information.

***Electric Segment***

The primary drivers of our electric operatingrevenues in any period are: (1) rates we can charge our customers, (2) weather,(3) customer growth and (4) general economic conditions. The utilitycommissions in the states in which we operate, as well as the Federal EnergyRegulatory Commission (FERC), set the rates which we can charge our customers.In order to offset expenses, we depend on our ability to receive adequate andtimely recovery of our costs (primarily fuel and purchased power) and/or raterelief. We assess the need for rate relief in all of the jurisdictions we serveand file for such relief when necessary. Weather affects the demand for electricity.Very hot summers and very cold winters increase electric demand, while mildweather reduces demand. Residential and commercial sales are impacted more byweather than industrial sales, which are mostly affected by business needs forelectricity and by general economic conditions. Customer growth, which is thegrowth in the number of customers, contributes to the demand for electricity.We expect our annual electric customer growth to range from approximately 1.6%to 1.9% over the next several years. Our electric customer growth for thetwelve months ended June 30, 2007 was 1.4%. We define electric sales growth tobe growth in kWh sales excluding the impact of weather. The primary drivers ofelectric sales growth are customer growth and general economic conditions.

The primary drivers of our electric operating expenses in any periodare: (1) fuel and purchased power expense, (2) maintenance and repairs expense,including repairs following severe weather, (3) taxes and (4) non-cash itemssuch as depreciation and amortization expense. Fuel and purchased power costsare our largest expense items. Several factors affect these costs, includingfuel and purchased power prices, plant outages and weather, which drivescustomer demand. In order to control the price we pay for fuel for electricgeneration and purchased power, we have entered into long and short-termagreements to purchase power (including wind energy) and coal and natural gasfor our energy supply. We currently engage in hedging activities in an effortto minimize our risk from volatile natural gas prices.

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***Gas Segment***

The primary drivers of our gas operating revenues inany period are: (1) rates we can charge our customers, (2) weather, (3)customer growth, (4) the cost of natural gas and interstate pipelinetransportation charges and (5) general economic conditions. The MPSC sets therates which we can charge our customers. In order to offset expenses, we dependon our ability to receive adequate and timely recovery of our costs (primarilycommodity natural gas) and/or rate relief. We assess the need for rate reliefand file for such relief when necessary. However, as part of the unanimousstipulation and agreement filed with the MPSC on March 1, 2006 and approved onApril 18, 2006, we have agreed to not file a rate increase request for non-gascosts prior to June 1, 2009. A PGA clause is included in our gas rates, whichallows us to recover our actual cost of natural gas from customers through ratechanges, which are made periodically (up to four times) throughout the year inresponse to weather conditions, natural gas costs and supply demands. Weatheraffects the demand for natural gas. Very cold winters increase demand for gas,while mild weather reduces demand. Due to the seasonal nature of the gasbusiness, revenues and earnings are typically concentrated in the Novemberthrough March period, which generally corresponds with the heating season. Customergrowth, which is the growth in the number of customers, contributes to thedemand for gas. Our gas segment customer growth for the twelve months endedJune 30, 2007 was (0.5)%, which we believe was due to higher gas prices andgeneral economic conditions. We expect our annual gas customer growth to rangefrom approximately 1.1% to 1.8% over the next several years. We define gassales growth to be growth in mcf sales excluding the impact of weather. Theprimary drivers of gas sales growth are customer growth and general economicconditions.

The primary driver of our gas operating expense in any period is theprice of natural gas. However, because gas purchase costs for our gas utilityoperations are normally recovered from our customers, any change in gas pricesdoes not have a corresponding impact on income unless such costs are deemedimprudent or causes customers to reduce usage.

***Earnings***

During the second quarter of 2007, basic and diluted earnings perweighted average share of common stock were $0.19 as compared to $0.27 in thesecond quarter of 2006. For the six months ended June 30, 2007, basic anddiluted earnings per weighted average share of common stock were $0.34 ascompared to $0.33 for the six months ended June 30, 2006.For the twelvemonths ended June 30, 2007, basic and diluted earnings per weighted averageshare of common stock were $1.35 as compared to $1.13 for the twelve monthsended June 30, 2006. As reflected in the table below, the primary positivedrivers for all periods presented were increased electric and gas revenueswhile negative drivers for all periods presented included increased purchasedpower costs, natural gas sold and transported costs, regulated electric and gasexpenses, depreciation, maintenance and repairs expense (including the effectof the January 2007 ice storm costs, primarily during the six months ended andtwelve months ended periods), other taxes and interest charges. Contributing toincreased earnings for the twelve months ended June 30, 2007 was a decrease inelectric fuel costs.

The following reconciliation of basic earnings per share between thethree months, six months and twelve months ended June 30, 2006 versus June 30,2007 is a non-GAAP presentation. We believe this information is useful inunderstanding the fluctuation in earnings per share between the prior andcurrent years. The reconciliation presents the after tax impact of significantitems and components of the statement of operations on a per share basis beforethe impact of additional stock issuances which is presented separately.Earnings per share for the three months, six months and twelve months endedJune 30, 2006 and 2007 shown in the reconciliation are presented on a GAAPbasis and are the same as the amounts included in the statements of operations.This reconciliation may not be comparable to other companies or more usefulthan the GAAP presentation included in the statements of operations.

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| ** **                                                | ** ** | **Three Months  Ended** | ** ** | **Six Months  Ended** | ** ** | **Twelve Months  Ended** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| **Earnings  Per Share – 2006***                      | ** ** | **$**                        | **0.27**   |                       | **$**      | **0.33**                      | ** ** | **$** | **1.13** | ** ** |
| ** **                                                | ** ** | ** **                   | ** ** | ** **                 | ** ** | ** **                    | ** ** |
| **Revenues**                                              | ** ** | ** **                   | ** ** | ** **                 | ** ** | ** **                    | ** ** |
| Electric  on-system                                       |       | $                            | 0.23       |                       | $          | 0.52                          |       | $ | 0.79 |   |
| Electric off –  system and other                     |       | (0.01                        | )          | 0.04                       |       | (0.02                         | )          |
| Gas**                                                     |       | 0.17                         |       | 0.85                       |       | 1.45                          |       |
| Water                                                     |       | 0.00                         |       | 0.00                       |       | 0.01                          |       |
| Non – Regulated                                      |       | 0.00                         |       | 0.01                       |       | 0.00                          |       |
| **Expenses**                                              | ** ** | ** **                   | ** ** | ** **                 | ** ** | ** **                    | ** ** |
| Electric fuel                                             |       | 0.01                         |       | (0.09                      | )          | 0.27                          |       |
| Purchased power                                           |       | (0.13                        | )          | (0.14                      | )          | (0.23                         | )          |
| Cost of natural  gas sold and transported**               |       | (0.10                        | )          | (0.56                      | )          | (0.93                         | )          |
| Regulated –  electric                                |       | (0.05                        | )          | (0.09                      | )          | (0.12                         | )          |
| Regulated – gas                                      |       | (0.04                        | )          | (0.11                      | )          | (0.24                         | )          |
| Maintenance and  repairs                                  |       | (0.03                        | )          | (0.16                      | )          | (0.23                         | )          |
| Depreciation and  amortization                            |       | (0.09                        | )          | (0.18                      | )          | (0.22                         | )          |
| Other taxes                                               |       | (0.02                        | )          | (0.07                      | )          | (0.11                         | )          |
| Interest charges                                          |       | (0.03                        | )          | (0.07                      | )          | (0.15                         | )          |
| AFUDC                                                     |       | 0.03                         |       | 0.06                       |       | 0.13                          |       |
| Discontinued  operations                                  |       | 0.01                         |       | 0.03                       |       | 0.05                          |       |
| Loss on plant  allowance                                  |       | 0.00                         |       | 0.00                       |       | (0.03                         | )          |
| Other income and  deductions                              |       | 0.00                         |       | 0.02                       |       | (0.01                         | )          |
| Dilutive effect  of additional shares issued in June 2006 |       | (0.03                        | )          | (0.05                      | )          | (0.19                         | )          |
| **Earnings Per Share**–**2007***                     | ** ** | **$**                        | **0.19**   | ** **                 | **$**      | **0.34**                      | ** ** | **$** | **1.35** | ** ** |

 

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** The effect of discontinued operations for 2007was a gain of $0.01 for the twelve months ended June 30, 2007 while the effectfor 2006 for the three months ended, six months ended and twelve months endedJune 30, periods were losses of $0.01, $0.03 and $0.04, respectively.*

*** Gas segment revenues andexpenses began June 1, 2006.*

**Recent Activities**

***Energy Supply***

On June 25, 2007, we entered into a 20-yearpurchased power agreement with Cloud County Windfarm, LLC, owned by HorizonWind Energy, Houston, Texas. The agreement provides for a 20-year termcommencing with the commercial operation date, which is expected to be aboutJanuary 1, 2009. We will begin taking delivery of the energy at that time.Pursuant to the terms of the agreement, we will purchase all of the output fromthe approximately 100-megawatt Meridian Way Wind Farm owned by Cloud CountyWindfarm, LLC. We do not own any portion of the windfarm. Annualpayments are contingent upon output of the facility and can range from zero toa maximum of approximately $14.6 million based on a 20-year average cost.

As of April 10, 2007, our new Siemens V84.3A2combustion turbine, Unit 12 at our Riverton plant, began commercial operation.Riverton Unit 12 will have a summer rated capacity of approximately 148megawatts, increasing our Riverton Plant’s total generating capacity to 284megawatts.

***2007 Ice Storm***

A major ice storm struck virtually all areas of ourelectric service territory January 12-14, 2007 causing substantial damage.Approximately 85,000 (52%) of our electric customers were without power at theheight of the storm. Costs associated with the restoration effort due to theice storm were approximately $30.7 million, of which $19.2 million has beencapitalized as additions to our utility plant, approximately $4.6 millionrecorded as maintenance expense and approximately

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$6.9 million was deferred as a regulatory asset as we believe it is probablethat these costs will be recoverable in future electric rate cases.

***New Union Agreement***

At April 30, 2007,we had 702 full-time employees, including 54 employees of EDG, who joined us inconjunction with the gas acquisition in June 2006. 326 of the EDE employees aremembers of Local 1474 of The International Brotherhood of Electrical Workers(IBEW), while 26 of the EDG employees are members of Local 814 of the IBEW and9 are members of Local 695 of the IBEW. On May 9, 2007, the Local1474 IBEW voted to ratify a new five-year agreement effective retroactively toNovember 1, 2006, the expiration date of the last contract.

***Financing***

On March 26, 2007, EDE issued $80 million principal amount of FirstMortgage Bonds, 5.875% Series due 2037. The net proceeds of $79.1 million, less$0.4 million of legal and other financing fees, were added to our general fundsand used to pay down short-term indebtedness incurred as a result of ouron-going construction program.

***BPU Contract***

In May 2007, we entered into a contract with Kansas City Kansas Boardof Public Utilities (BPU) for the sale of energy and capacity for June throughSeptember of 2007 and 2008. Capacity revenue will total approximately $1.3million each year with the energy portion dependent upon the number of hoursthe contract is utilized by BPU.

***Regulatory Matters***

On December 29, 2006, the Office of Public Counsel(OPC) and intervenors Praxair, Inc. and Explorer Pipeline Company, filed anapplication with the MPSC requesting the MPSC grant a rehearing on most of theissues addressed in the December 2006 Missouri rate case order and many of theprocedural issues. On December 29, 2006, we also filed an application with theMPSC requesting a rehearing on return on equity, capital structure and energycost recovery. A decision by the MPSC is pending.

Praxair and Explorer Pipeline filed a Petition forWrit of Review with the Cole County Circuit Court on January 31, 2007. TheCircuit Court issued a Writ, but the MPSC has moved to have the Writ set asideand the case dismissed. The MPSC’s motion to set aside the Writ is stillpending. On March 20, 2007, Praxair and Explorer filed a motion in the CircuitCourt writ proceeding requesting an immediate stay of the effectiveness of ourDecember 2006 Missouri rate case order and the tariffs filed pursuant thereto.The stay motion remains pending before the Circuit Court.

On January 4, 2007, the OPC filed a Petition forWrit of Mandamus with the Missouri Court of Appeals, Western District. We filedsuggestions in opposition to the Petition, as did the MPSC. On March 12, 2007,the Court of Appeals, Western District issued an order denying the OPC’spetition. On March 19, 2007, the OPC filed a Petition for Writ of Mandamus withthe Missouri Supreme Court seeking to have the tariffs filed by us and approvedby the MPSC set aside. On May 31, 2007, the MPSC filed, as ordered by theMissouri Supreme Court, its response to the OPC’s petition. The Court alsoaccepted for filing the answer and suggestions we filed in opposition to theOPC’s petition. The Court ordered the parties to file briefs according to aschedule. The OPC filed its brief on June 29, 2007. The MPSC’s responsive briefwas filed July 27, 2007. The OPC filed a reply brief on August 6, 2007.

For additional information, see “Rate Matters”below.

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**RESULTSOF OPERATIONS**

Thefollowing discussion analyzes significant changes in the results of operationsfor the three-month, six-month and twelve-month periods ended June 30, 2007,compared to the same periods ended June 30, 2006.

The following table represents our results of operations by operatingsegment for the applicable periods ended June 30:
| ** **                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** | **Twelve Months Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| **(in millions)**                     | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007**                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                       |       |                             |       |                           |       |                              |       |   |   |   |   |   |   |
| Income from  continuing operations         |       |                             |       |                           |       |                              |       |   |   |   |   |   |   |
| Electric                                   |       | $                                | 6.6        |                           | $          | 7.8                               |       | $ | 9.4 |   | $ | 9.8 |   | $ | 40.6 |   | $ | 30.9 |   |
| Gas                                        |       | (0.8                             | )          | (0.4                           | )          | 0.9                               |       | (0.4 | ) | 0.3 |   | (0.4 | ) |
| Other                                      |       | 0.0                              |       | 0.0                            |       | 0.0                               |       | 0.1 |   | (0.2 | ) | 0.1 |   |
| Income from  continuing operations         |       | $                                | 5.8        |                           | $          | 7.4                               |       | $ | 10.3 |   | $ | 9.5 |   | $ | 40.7 |   | $ | 30.6 |   |
| Income/(loss) from discontinued operations |       | —                           |       | (0.3                           | )          | —                            |       | (0.8 | ) | 0.2 |   | (1.0 | ) |
| Net income                                 |       | $                                | 5.8        |                           | $          | 7.1                               |       | $ | 10.3 |   | $ | 8.7 |   | $ | 40.9 |   | $ | 29.6 |   |

 

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**Differencescould occur due to rounding.*

***Electric Segment***

**Overview**

Ourelectric segment income from continuing operations for the second quarter of2007 was $6.6 million as compared to $7.8 million for the second quarter of2006.

Electricsegment operating revenues comprised approximately 91.1% of our total operatingrevenues during the second quarter of 2007. Of our total electric operatingrevenues during the second quarter of 2007, approximately 37.2% were fromresidential customers, 32.8% from commercial customers, 17.8% from industrialcustomers, 4.4% from wholesale on-system customers, 3.9% from wholesaleoff-system transactions and 3.9% from miscellaneous sources, primarily publicauthorities. The breakdown of our customer classes has not significantlychanged from the second quarter of 2006.

Theamounts and percentage changes from the prior periods in kilowatt-hour (“kWh”)sales and operating revenues by major customer class for on-system sales forthe applicable periods ended June 30, were as follows:

**kWhSales**
| ** **             | ** ** | **3 Months** | ** ** | **3 Months** | ** ** | ** **  | ** ** | **6 Months** | ** ** | **6 Months** | ** ** | ** **  | ** ** | **12 Months** | ** ** | **12 Months** | ** ** | ** **  | ** ** |
|------------------------|------------|-------------------|------------|-------------------|------------|-------------|------------|-------------------|------------|-------------------|------------|-------------|------------|--------------------|------------|--------------------|------------|-------------|------------|
| ** **             | ** ** | **Ended**         | ** ** | **Ended**         | ** ** | **%**       | ** ** | **Ended**         | ** ** | **Ended**         | ** ** | **%**       | ** ** | **Ended**          | ** ** | **Ended**          | ** ** | **%**       | ** ** |
| **(in millions)** | ** ** | **2007**          | ** ** | **2006**          | ** ** | **Change*** | ** ** | **2007**          | ** ** | **2006**          | ** ** | **Change*** | ** ** | **2007**           | ** ** | **2006**           | ** ** | **Change*** | ** ** |
| Residential            |       | 378.7             |       | 392.3             |       | (3.5        | )%         | 923.9             |       | 866.4             |       | 6.6         | %          | 1,956.3            |       | 1,867.2            |       | 4.8         | %          |
| Commercial             |       | 398.4             |       | 372.0             |       | 7.1         |       | 756.1             |       | 702.2             |       | 7.7         |       | 1,601.0            |       | 1,503.6            |       | 6.5         |       |
| Industrial             |       | 289.5             |       | 289.0             |       | 0.2         |       | 544.9             |       | 554.9             |       | (1.8        | )          | 1,135.5            |       | 1,138.1            |       | (0.2        | )          |
| Wholesale On-System    |       | 82.5              |       | 83.4              |       | (1.0        | )          | 162.7             |       | 161.4             |       | 0.8         |       | 339.0              |       | 335.5              |       | 1.0         |       |
| Other**                |       | 27.6              |       | 27.1              |       | 2.0         |       | 55.7              |       | 53.1              |       | 4.8         |       | 115.3              |       | 112.6              |       | 2.4         |       |
| Total On-System        |       | 1,176.7           |       | 1,163.8           |       | 1.1         |       | 2,443.3           |       | 2,338.0           |       | 4.5         |       | 5,147.1            |       | 4,957.0            |       | 3.8         |       |

 

**OperatingRevenues**
| ** **                    | ** ** | **3 Months** | ** ** | **3 Months** | ** ** | ** **  | ** ** | **6 Months** | ** ** | **6 Months** | ** ** | ** **  | ** ** | **12 Months** | ** ** | **12 Months** | ** ** | ** **  | ** ** |
|-------------------------------|------------|-------------------|------------|-------------------|------------|-------------|------------|-------------------|------------|-------------------|------------|-------------|------------|--------------------|------------|--------------------|------------|-------------|------------|
| ** **                    | ** ** | **Ended**         | ** ** | **Ended**         | ** ** | **%**       | ** ** | **Ended**         | ** ** | **Ended**         | ** ** | **%**       | ** ** | **Ended**          | ** ** | **Ended**          | ** ** | **%**       | ** ** |
| **($ in millions)** | ** ** | **2007**          | ** ** | **2006**          | ** ** | **Change*** | ** ** | **2007**          | ** ** | **2006**          | ** ** | **Change*** | ** ** | **2007**           | ** ** | **2006**           | ** ** | **Change*** | ** ** |
| Residential                   |       | $                 | 36.2       |              | $          | 33.9        |       | 6.8               | %          | $                 | 80.9       |        | $          | 70.8               |       | 14.3               | %          | $           | 169.5      |   | $ | 155.0 |   | 9.4 | % |
| Commercial                    |       | 32.0              |       | 27.0              |       | 18.4        |       | 58.3              |       | 49.7              |       | 17.4        |       | 123.7              |       | 110.6              |       | 11.9        |       |
| Industrial                    |       | 17.4              |       | 16.2              |       | 7.7         |       | 31.9              |       | 30.2              |       | 5.7         |       | 66.5               |       | 63.6               |       | 4.6         |       |
| Wholesale On-System           |       | 4.3               |       | 4.3               |       | 0.0         |       | 8.6               |       | 8.6               |       | (0.2        | )          | 17.5               |       | 17.7               |       | (0.8        | )          |
| Other**                       |       | 2.3               |       | 2.1               |       | 8.7         |       | 4.6               |       | 4.1               |       | 11.8        |       | 9.5                |       | 8.9                |       | 6.7         |       |
| Total On-System               |       | $                 | 92.2       |              | $          | 83.5        |       | 10.4              |       | $                 | 184.3      |        | $          | 163.4              |       | 12.8               |       | $           | 386.7      |   | $ | 355.8 |   | 8.7 |   |

 

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**Percentagechanges are based on actual kWh sales and revenues and may not agree to therounded amounts shown above.*

***OtherkWh sales and other operating revenues include street lighting, other publicauthorities and interdepartmental usage.*

***Quarter Ended June 30, 2007 Compared to Quarter Ended June 30, 2006***

**OperatingRevenues and Kilowatt-Hour Sales**

KWhsales for our on-system customers increased during the second quarter of 2007as compared to the second quarter of 2006 primarily due to continued salesgrowth. Revenues for our on-system customers increased approximately $8.7million, or 10.4%. The January 2007 Missouri rate increase (discussed below)contributed an estimated $6.6 million to revenues while continued sales growthcontributed an estimated $2.3 million during the second quarter of 2007. Weatherand other related factors decreased revenues by approximately $0.2 millioncompared to last year’s second quarter. Total cooling degree days (thecumulative number of degrees that the average temperature for each day duringthat period was above 65*°* F)for the second quarter of 2007 were 1.0% more than the same period last yearand 42.4% more than the 30-year average. We expect our annual electric customer growth to range fromapproximately 1.6% to 1.9% over the next several years. Our electric customergrowth for the twelve months ended June 30, 2007 was 1.4%.

ResidentialkWh sales decreased during the second quarter of 2007 primarily due tounusually rainy weather in June 2007 as compared with 2006. Revenues werepositively affected by the January 2007 Missouri rate increase.

Commercialand industrial kWh sales and revenues increased for the second quarter of 2007as compared to the same period in 2006 mainly due to continued sales growthwhile the increased revenues also reflected the Missouri rate increase.

On-systemwholesale kWh sales decreased during the second quarter of 2007 reflecting theweather discussed above. Revenues associated with these FERC-regulated salesdecreased slightly as a result of the fuel adjustment clause applicable to suchsales. This clause permits the distribution to customers of changes in fuel andpurchased power costs.

**Off-SystemElectric Transactions**

In addition to sales to our own customers, we alsosell power to other utilities as available and provide transmission servicethrough our system for transactions between other energy suppliers. Thefollowing table sets forth information regarding these sales and relatedexpenses for the applicable periods ended June 30:
|                        | ** ** | **2007**              | ** ** | **2006**              | ** ** |
|------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **             | ** ** | **Three Months** | ** ** | **Three Months** | ** ** |
| **(in millions)** | ** ** | **Ended**             | ** ** | **Ended**             | ** ** |
|                   |       |                  |       |                  |       |
| Revenues               |       | $                     | 4.4        |                  | $          | 4.6 |   |
| Expenses               |       | 3.3                   |       | 3.2                   |       |
| Net*                   |       | $                     | 1.1        |                  | $          | 1.4 |   |

 

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**Differences could occur due torounding.*

Revenuesless expenses decreased during the second quarter of 2007 as compared to thesecond quarter of 2006, mainly due to less excess power available for sale dueto decreased generation by our gas fired units in the second quarter of 2007resulting from maintenance outages at our Energy Center and SLCC plants. TheSPP Energy Imbalance Services (EIS) market contributed $1.4 million to ouroff-system electric revenues in the second quarter of 2007 with $1.2 million ofrelated expense. The BPU contract also had a positive effect on revenues. Totalpurchase power related expenses are included in our discussion of purchasedpower costs below.

33

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**OperatingRevenue Deductions**

Duringthe second quarter of 2007, total electric segment operating expenses increasedapproximately $10.4 million (14.0%) compared with the same period last year.Purchased power costs increased approximately $5.5 million (38.7%) during thesecond quarter of 2007 mainly due to increased purchases on the spot market forreplacement energy due to an unscheduled outage at the Iatan plant in May 2007and the timing of planned maintenance outages this year compared to last year.Total fuel costs decreased approximately $0.6 million (2.6%). The decrease infuel costs was primarily due to decreased coal generation in the second quarterof 2007 (approximately $1.6 million) due to the Iatan outage and springmaintenance outages at the Asbury plant and the Riverton plant’s Unit #8,partially offset by higher prices for coal (approximately $0.5 million).Decreased generation by our gas fired units, mainly due to maintenance outagesat our Energy Center and SLCC plants, contributed an estimated $1.3 million tothe decrease in total fuel costs offset by higher prices for both the hedgedand unhedged natural gas that we burned in our gas-fired units in the secondquarter of 2007 (an estimated $1.5 million). The net increase in fuel andpurchased power during the second quarter of 2007 as compared to the sameperiod last year was $4.9 million (13.3%).

Regulated– other operating expenses for our electric segment increased approximately$1.9 million (14.0%) during the second quarter of 2007 as compared to the sameperiod in 2006 primarily due to a $0.5 million increase in employee pensionexpense, a $0.4 million increase in employee health care expense, a $0.2million increase in uncollectible accounts, a $0.3 million increase intransmission and distribution expense, a $0.2 million increase in labor andother costs and a $0.2 million increase in injuries and damages expense. Theincrease in pension costs is primarily due to the effects of regulatory accounting.We defer or record pension and other postretirement benefit costs (other thanEDG other postretirement benefit costs) if they are more or less, respectively,than those allowed in rates for the Missouri and Kansas portion of pensioncosts. The increase in employee health care costs resulted from higher activeemployee costs.

Maintenanceand repairs expense increased approximately $0.8 million (14.9%) as compared tothe second quarter of 2006 primarily due to a $0.6 million increase intransmission and distribution maintenance costs (including $0.2 million inadditional January ice storm expense recorded in the second quarter), a $0.2 millionincrease in maintenance and repairs expense at the Asbury plant and a $0.1million increase in maintenance and repairs expense at the Riverton plant.These increases were partially offset by a $0.2 million decrease in maintenanceand repairs expense at the State Line Combined Cycle (SLCC) plant as comparedto the second quarter of 2006.

Depreciationand amortization expense increased approximately $3.3 million (36.2%) duringthe quarter mainly due to $2.6 million of additional depreciation related tothe January 2007 Missouri rate order. Other taxes increased approximately $0.4million during the second quarter of 2007 mainly due to increased property taxreflecting our additions to plant in service.

***Six Months Ended June 30, 2007 Compared to Six Months Ended June 30,2006***

**OperatingRevenues and Kilowatt-Hour Sales**

KWh sales for our on-system customers increased during the six monthsended June 30, 2007 as compared to the six months ended June 30, 2006 primarilydue to continued sales growth and colder weather in the first quarter of 2007as compared to 2006. Revenues for our on-system customers increasedapproximately $20.9 million, or 12.8%. The January 2007 Missouri rate increase(discussed below) contributed an estimated $12.4 million to revenues whilecontinued sales growth contributed an estimated $5.1 million during the sixmonths ended June 30, 2007. Weather and other related factors increasedrevenues by approximately $3.4 million compared to six months ended June 30,2006.

34

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Theincrease in residential kWh sales during the six months ended June 30, 2007 wasprimarily due to the colder weather conditions in the first quarter as comparedwith 2006 and continued sales growth. Revenues were also positively affected bythe January 2007 Missouri rate increase.

CommercialkWh sales and revenues increased for the six months ended June 30, 2007 ascompared to the same period in 2006 mainly due to continued sales growth whilethe increased revenues also reflected the Missouri rate increase. IndustrialkWh sales decreased during the six months ended June 30, 2007 primarily due toa pipeline customer running at minimum output during the first quarter of 2007.Industrial revenues increased during this period, reflecting the Missouri rateincrease.

On-systemwholesale kWh sales increased during the six months ended June 30, 2007reflecting the continued sales growth and weather discussed above. Revenuesassociated with these FERC-regulated sales decreased slightly, however, as aresult of the fuel adjustment clause applicable to such sales.

**Off-SystemElectric Transactions**

In addition to sales to our own customers, we alsosell power to other utilities as available and provide transmission servicethrough our system for transactions between other energy suppliers. Thefollowing table sets forth information regarding these sales and relatedexpenses for the applicable periods ended June 30:
| (in millions) | ** ** | **2007  Six Months**

**Ended** | ** ** | **2006  Six Months**

**Ended** | ** ** |
|--------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
|               |       |                                 |       |                                 |       |
| Revenues           |       | $                                    | 8.6        |                                 | $          | 6.9 |   |
| Expenses           |       | 6.1                                  |       | 4.9                                  |       |
| Net*               |       | $                                    | 2.5        |                                 | $          | 2.0 |   |

 

----

**Differences could occur due torounding.*

Revenuesless expenses increased during the six months ended June 30, 2007 as comparedto the six months ended June 30, 2006 primarily due to sales facilitated by theSPP EIS market that began on February 1, 2007. Sales from this marketcontributed $3.3 million to our off-system electric revenues in the six monthsended June 30, 2007 with $2.2 million of related expense. Total purchase powerrelated expenses are included in our discussion of purchased power costs below.

**OperatingRevenue Deductions**

Duringthe six months ended June 30, 2007, total electric segment operating expensesincreased approximately $24.7 million (16.8%) compared with the same periodlast year. Purchased power costs increased approximately $5.8 million (17.0%)during the six months ended June 30, 2007 mainly due to increased purchases onthe spot market for replacement energy due to an unscheduled outage at theIatan plant in May 2007. Total fuel costs increased approximately $3.7 million(8.6%). The increase in fuel costs was primarily due to increased generation byour gas fired units during the six months ended June 30, 2007 (an estimated$4.4 million) partially offset by lower prices for both the hedged and unhedgednatural gas that we burned in our gas-fired units (an estimated $0.8 million).Increased coal costs contributed approximately $1.5 million to total fuel costsduring the six months ended June 30, 2007 offset by decreased coal generation(approximately $1.7 million). The net increase in fuel and purchased powerduring the six months ended June 30, 2007 as compared to the same period lastyear was $9.5 million (12.3%).

Regulated– other operating expenses for our electric segment increased approximately$3.5 million (13.3%) during the six months ended June 30, 2007 as compared tothe same period in 2006 primarily due to a $1.3 million increase in employeepension expense, a $0.6 million increase in uncollectible accounts, a $0.4 millionincrease in transmission and distribution expense, a $0.3 

35

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millionincrease in labor and other costs, a $0.3 million increase in injuries anddamages expense, a $0.2 million increase in regulatory commission expense andsmall increases in other various expenses. The increase in pension costs isprimarily due to the effects of regulatory accounting. Employee health carecosts also increased due to regulatory accounting but were offset by loweractuarial costs and lower active health care expenses. We defer or recordpension and other postretirement benefit costs (other than EDG otherpostretirement benefit costs) if they are more or less, respectively, thanthose allowed in rates for the Missouri and Kansas portion of pension costs.

Maintenanceand repairs expense increased approximately $5.9 million (57.9%) as compared tothe six months ended June 30, 2006 primarily due to a $5.8 million increase indistribution maintenance costs, a $0.3 million increase in transmissionmaintenance costs, a $0.6 million increase in maintenance and repairs expenseat the Iatan plant related to the 2007 first quarter planned maintenance andturbine inspection and a $0.2 million increase in maintenance and repairsexpense at the Riverton plant. The increase in distribution costs reflects $4.6million related to the January 2007 ice storm. Another $1.2 million ofnon-incremental tree trimming and labor maintenance cost was incurred in thefirst quarter of 2007 on the ice storm that otherwise would have been spent onother projects. These increases were partially offset by a $0.6 milliondecrease in maintenance and repairs expense at the Asbury plant as compared to2006 when the Asbury plant had an unscheduled outage in the first quarter dueto a blade failure and a $0.3 million decrease in maintenance and repairsexpense for our SLCC plant.

Depreciationand amortization expense increased approximately $6.3 million (34.9%) duringthe six months ended June 30, 2007 mainly due to $5.2 million of additionaldepreciation related to the January 2007 Missouri rate order. Other taxesincreased approximately $0.9 million during the six months ended June 30, 2007due to increased property tax reflecting our additions to plant in service andincreased municipal franchise taxes.

***Twelve Months Ended June 30, 2007 Compared to Twelve Months Ended June30, 2006***

**OperatingRevenues and Kilowatt-Hour Sales**

Forthe twelve months ended June 30, 2007, kWh sales to our on-system customersincreased 3.8% with the associated revenues increasing approximately $31.0million (8.7%). The January 2007 Missouri rate increase and January 2006 Kansasrate increase, as well as the IEC from the March 2005 Missouri rate increase,contributed an estimated $14.2 million to revenues while continued sales growthcontributed an estimated $11.3 million. Weather and other related factors,including the effect of the January 2007 ice storm, had an estimated $0.4million negative effect. Additionally, a one time revision to our estimate ofunbilled revenues in the third quarter of 2006 contributed $5.9 million torevenues during the twelve months ended June 30, 2007. Residential andcommercial kWh sales and associated revenues increased primarily due to thestrong sales growth and the increase from our revisions to our estimate ofunbilled revenues while the associated revenues also increased due to theMissouri and Kansas rate increases. Industrial kWh sales and revenues increasedfor the twelve months ended June 30, 2007 reflecting the increased sales growthand the aforementioned rate increases. On-system wholesale kWh sales increasedreflecting the continued sales growth discussed above. Revenues associated withthese FERC-regulated sales increased less than the kWh sales as a result of thefuel adjustment clause applicable to such sales.

**Off-SystemElectric Transactions**

In addition to sales to our own customers, we alsosell power to other utilities as available and provide transmission servicethrough our system for transactions between other energy suppliers. The followingtable sets forth information regarding these sales and related expenses for theapplicable periods ended June 30:

36

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| (in millions) | ** ** | **2007  Twelve Months  Ended** | ** ** | **2006  Twelve Months  Ended** | ** ** |
|--------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
|               |       |                                |       |                                |       |
| Revenues           |       | $                                   | 16.1       |                                | $          | 17.0 |   |
| Expenses           |       | 11.6                                |       | 12.5                                |       |
| Net*               |       | $                                   | 4.5        |                                | $          | 4.5 |   |

 

----

**Differences could occur due torounding.*

Revenuesless expenses were virtually the same during the twelve months ended June 30,2007 as compared to the same period in 2006. Sales from SPP EIS market thatbegan on February 1, 2007 contributed $3.3 million to our off-system electricrevenues for the twelve months ended June 30, 2007 with $2.2 million of relatedexpense. Total purchase power related expenses are included in our discussionof purchased power costs below.

**OperatingRevenue Deductions**

Duringthe twelve months ended June 30, 2007, total electric segment operatingexpenses increased approximately $24.7 million (7.8%) compared to the year agoperiod. Total fuel costs decreased approximately $10.9 million (10.0%) duringthe twelve months ended June 30, 2007 and purchased power costs increased $9.1million (14.4%) during the same period. The increase in purchased power costsprimarily reflected our increased purchases from the Elk River Windfarm, LLCand the increased purchases on the spot market for replacement energy due to anunscheduled outage at the Iatan plant in May 2007. The decrease in fuel costswas primarily due to decreased generation by our gas-fired units (an estimated$7.8 million) and lower prices for both the hedged and unhedged natural gasthat we burned in our gas-fired units (an estimated $3.1 million). Decreasedcoal generation of approximately $1.7 million also contributed to the decreasein fuel costs, offset by increased coal costs of approximately $3.3 million.The net decrease in fuel and purchased power during the twelve months endedJune 30, 2007 as compared to the same period last year was $1.8 million (1.0%).

Regulated– other operating expenses increased approximately $4.9 million (9.2%) duringthe twelve months ended June 30, 2007 as compared to the same period last yeardue primarily to a $2.2 million increase in employee pension expense, a $0.6million increase in uncollectible accounts, a $0.6 million increase in laborcosts, a $0.5 million increase in transmission and distribution expense, a $0.3million increase in injuries and damages expense, a $0.3 million increase incustomer assistance expense, a $0.2 million increase in regulatory commissionexpense and a $0.2 million increase in professional services.

Maintenanceand repairs expense increased approximately $7.4 million (35.7%) during thetwelve months ended June 30, 2007, compared to the year ago period reflectingincreases of approximately $7.1 million in distribution maintenance costs,including $4.6 million of incremental costs (and the $1.2 millionnon-incremental tree trimming and labor costs in the first quarter of 2007)related to the January 2007 ice storm, a $0.7 million increase in maintenanceand repairs expense at the Iatan plant related to the 2007 first quarterinspection, a $0.6 million increase in maintenance and repairs expense for ourSLCC plant and a $0.4 million increase in maintenance and repairs at our StateLine Unit 1 plant, which had its first major inspection from September 7, 2006until December 20, 2006. These increases were partially offset by an $0.8million decrease in maintenance and repairs expense at the Asbury plant duringthe twelve months ended June 30, 2007 as compared to the same period in 2006when the Asbury plant had an unscheduled outage due to a blade failure and a$0.5 million decrease in maintenance and repairs expense at our Riverton plant.

Depreciationand amortization expense increased approximately $7.0 million (19.6%) mainlydue to $5.2 million of additional depreciation related to the January 2007Missouri rate order as well as increased plant in service. Other taxesincreased approximately $1.2 million due to increased property taxes reflectingour additions to plant in service and increased municipal franchise taxes.

37

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***Gas Segment***

**Operating Revenues and Sales**

During the second quarter of 2007, our total naturalgas revenues were $8.4 million as compared to $1.6 million in the secondquarter of 2006, which represented our first month of operations (June 2006).Our total natural gas revenues for the six months and twelve months ended June30, 2007 were $36.0 million and $59.5 million, respectively. The winter monthsare high sales months for the natural gas business, whose heating seasongenerally runs from November to March of each year.

The following table detailsour natural gas sales and revenues for the periods ended June 30, 2007:

**Total gas delivered to customers**
| (mcf Sales)           | ** ** | **Three Months  Ended** | ** ** | **Six Months  Ended** | ** ** | **Twelve Months  Ended** | ** ** |
|----------------------------|------------|------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| Residential                |       | 355,740.3                    |       | 1,724,695.3                |       | 2,774,299.7                   |       |
| Commercial                 |       | 182,176.6                    |       | 761,391.5                  |       | 1,281,801.4                   |       |
| Industrial                 |       | 9,873.3                      |       | 27,780.4                   |       | 57,871.4                      |       |
| Public  authorities        |       | 3,735.1                      |       | 19,386.9                   |       | 30,213.7                      |       |
| Total retail  sales        |       | 551,525.3                    |       | 2,533,254.1                |       | 4,144,186.2                   |       |
| Transportation  sales      |       | 922,315.3                    |       | 2,272,990.3                |       | 4,214,138.0                   |       |
| Total gas operating  sales |       | 1,473,840.6                  |       | 4,806,244.4                |       | 8,358,324.2                   |       |

 

**Operating Revenues**
| ($ in millions)     | ** ** | **Three Months  Ended** | ** ** | **Six Months  Ended** | ** ** | **Twelve Months  Ended** | ** ** |
|-------------------------------|------------|------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| Residential                   |       | $                            | 5.4        |                       | $          | 24.0                          |       | $ | 39.0 |   |
| Commercial                    |       | 2.4                          |       | 9.9                        |       | 16.5                          |       |
| Industrial                    |       | 0.1                          |       | 0.3                        |       | 0.6                           |       |
| Public  authorities           |       | 0.0                          |       | 0.2                        |       | 0.4                           |       |
| Total retail  sales revenues  |       | $                            | 7.9        |                       | $          | 34.4                          |       | $ | 56.5 |   |
| Transportation  revenues      |       | 0.5                          |       | 1.5                        |       | 2.8                           |       |
| Total gas operating  revenues |       | $                            | 8.4        |                       | $          | 35.9                          |       | $ | 59.3 |   |

 

*Revenuesexclude forfeited discounts, reconnect fees, miscellaneous service revenues,etc.*

**Operating Revenue Deductions**

During the second quarter of 2007, EDG’s cost ofnatural gas sold and transported was approximately $4.7 million as compared to$0.7 million in the second quarter (June) of 2006. EDG’s cost of natural gassold and transported for the six months and twelve months ended June 30, 2007were approximately $23.4 million and $38.0 million, respectively. The cost ofnatural gas tends to vary with changing sales requirements and unit cost ofnatural gas purchases. However, due to purchased natural gas cost recoverymechanisms for retail customers, fluctuations in the cost of natural gas havelittle effect on income. Our Purchased Gas Adjustment (PGA) Clause allows us torecover from our customers, subject to routine regulatory review, the cost ofpurchased gas supplies, including costs, cost reductions, and related carryingcosts associated with the use of financial instruments to hedge the purchaseprice of natural gas.

Totalother operating expenses were $2.6 million for the second quarter of 2007, $5.5million for the six months ended June 30, 2007 and $10.5 million for the twelvemonths ended June 30, 2007. EDG had a net loss of $0.7 million for the secondquarter of 2007 and net income of $0.9 million for the six months ended and$0.3 million for the twelve months ended periods. Approximately $1.2 million intransition costs were paid to Aquila, Inc. in 2006 for billing and othertransition services. These Aquila, Inc. services ended when they weretransitioned to Empire by November 1, 2006.

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***Other Segment***

Our other segment includes leasing of fiber optics cable and equipment(which we are also using in our own utility operations) and Internet access.The following table represents our results of continuing operations for ourremaining non-regulated businesses for the applicable periods ended June 30:
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** | **Twelve Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| **(in millions)**                        | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007**                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues                                      |       | $                                | 1.2        |                           | $          | 1.0                               |       | $ | 2.3 |   | $ | 2.0 |   | $ | 4.5 |   | $ | 4.0 |   |
| Expenses                                      |       | 1.2                              |       | 1.0                            |       | 2.3                               |       | 1.9 |   | 4.7 |   | 3.9 |   |
| Net income (loss) from continuing operations* |       | $                                | 0.0        |                           | $          | 0.0                               |       | $ | 0.0 |   | $ | 0.1 |   | $ | (0.2 | ) | $ | 0.1 |   |

 

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**Differences could occur due torounding.*

***Consolidated Company***

**IncomeTaxes**

Ourconsolidated provision for income taxes decreased approximately $1.2 millionduring the second quarter of 2007 as compared to the same period in 2006,primarily resulting from lower income. Our consolidated effective federal andstate income tax rate for the second quarter of 2007 was 32.1% as compared to34.7% for the second quarter of 2006. An increase in equity AFUDC, anon-taxable benefit, reduced our effective tax rate for the second quarter of2007.

Ourconsolidated provision for income taxes decreased approximately $0.7 millionduring the six months ended June 30, 2007 as compared to the same period in2006, despite higher income. This resulted from our reduced tax rate. Ourconsolidated effective federal and state income tax rate for the six monthsended June 30, 2007 was 29.8% as compared to 34.5% for the same period in 2006.The reduced effective rate was primarily caused by an adjustment to ourestimate of Medicare Part D benefits in the first quarter of 2007, whichreduced our first quarter provision approximately $0.5 million. An increase inequity AFUDC also reduced our effective tax rate for the six months ended June30, 2007.

Our consolidated provision for income taxes increased approximately$5.4 million during the twelve months ended June 30, 2007 as compared to twelvemonths ended June 30, 2006 due to higher income. Our effective federal andstate income tax rate for the twelve months ended June 30, 2007 was 34.2% ascompared to 33.7% for the same period in 2006.

**NonoperatingItems**

Total allowancefor funds used during construction (AFUDC) for both equity and borrowed funds, increased$1.0 million in the second quarter of 2007 as compared to 2006. AFUDC increased$2.6 million during the six months ended June 30, 2007 and increased $5.4million during the twelve months ended June 30, 2007 as compared to the sameperiods in 2006 due to higher levels of construction in each period.

Total interestcharges on long-term debt increased $1.8 million (28.9%) in the second quarterof 2007, $2.8 million (23.1%) for the six months ended June 30, 2007 and $4.7million (19.5%) for the twelve months ended June 30, 2007 as compared to theprior year periods (offset by the increased AFUDC discussed above). Theseincreases reflect interest on the first mortgage bonds issued June 1, 2006 byEDG to fund a portion of our acquisition of the Missouri natural gasdistribution operations from Aquila, Inc. and $80 million principal amount offirst mortgage bonds issued March 26, 2007 by EDE, the proceeds of which wereadded to our general funds and used to pay down short-term indebtednessincurred as a result of our on-going construction program.

Short-term debt interest decreased $0.6 million inthe second quarter of 2007, reflecting the use of proceeds from the firstmortgage bonds issued in March 2007 to pay down short-term indebtedness.Short-term debt interest increased $0.1 million for the six months ended June30, 2007 and $1.0 million for the twelve months ended June 30, 2007 as comparedto the prior year periods, reflecting increased usage of short-term debt ineach of those periods.

39

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Losses from discontinued operations, which includedoperations and gains recognized from the sales of MAPP and Conversant, wereapproximately $0.3 million for the quarter ended June 30, 2006, $0.8 millionfor the six months ended June 30, 2006 and $1.0 million for the twelve monthsended June 30, 2006, with earnings of $0.2 million for the twelve months endedJune 30, 2007.

**Other Comprehensive Income**

The change in the fair value of the effective portion of our open gascontracts for our electric business and our interest rate derivative contractsand the gains and losses on contracts settled during the periods being reported,including the tax effect of these items, are reflected in our ConsolidatedStatement of Comprehensive Income. This net change is recorded as accumulatedother comprehensive income in the capitalization section of our balance sheetand does not affect net income or earnings per share. All of these contractshave been designated as cash flow hedges. The unrealized gains and lossesaccumulated in other comprehensive income are reclassified to fuel, or interestexpense, in the periods in which the hedged transaction is actually realized orno longer qualifies for hedge accounting.

The following table sets forth the pre-tax activity of our natural gascontracts and interest rate contracts for our electric segment that havesettled and been reclassified, the pre-tax change in the fair market value(FMV) of our open contracts and the tax effect in Other Comprehensive Incomefor the presented periods ended June 30:
| ** **                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** | **Twelve Months Ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| **(in millions)**                           | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007**                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Natural gas contracts  settled *(1)*             |       | $                                | (0.2       | )                              | $          | 0.1                               |       | $ | — |   | $ | (0.8 | ) | $ | (0.6 | ) | $ | (4.9 | ) |
| Total contracts  settled                         |       | $                                | (0.2       | )                              | $          | 0.1                               |       | $ | — |   | $ | (0.8 | ) | $ | (0.6 | ) | $ | (4.9 | ) |
| Change in FMV of open  contracts for natural gas |       | $                                | 5.7        |                           | $          | (2.3                              | )          | $ | 8.6 |   | $ | (8.4 | ) | $ | 3.4 |   | $ | 3.1 |   |
| Total change in  FMV of open contracts contracts |       | $                                | 5.7        |                           | $          | (2.3                              | )          | $ | 8.6 |   | $ | (8.4 | ) | $ | 3.4 |   | $ | 3.1 |   |
| Taxes                                            |       | $                                | (2.1       | )                              | $          | 0.8                               |       | $ | (3.3 | ) | $ | 3.5 |   | $ | (1.1 | ) | $ | 0.6 |   |
| Total change in OCI – net of tax            |       | $                                | 3.4        |                           | $          | (1.4                              | )          | $ | 5.3 |   | $ | (5.7 | ) | $ | 1.7 |   | $ | (1.2 | ) |

 

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*(1) Reflected in fuel expense*

Our average cost for our open financial natural gas hedges increasedfrom $5.355/Dth at March 31, 2007 to $5.399/Dth at June 30, 2007.

As of June 30, 2007, we elected to change our valuation of natural gasderivatives (financial hedges) for financial reporting purposes to a newmethodology which is more closely related to an independent market valuation.For accounting purposes, this change is considered a change in estimate. Toreflect the change, an increase of approximately $6 million was recorded to thefair value of derivatives and $3.7 million, net of tax, was recorded to othercomprehensive income at June 30, 2007. This change has no impact on the incomestatement.

**RATEMATTERS**

We continually assess the need for rate relief in all of thejurisdictions we serve and file for such relief when necessary.

***Electric Segment***

The following table sets forth information regarding electric and waterrate increases since July 1, 2005:

40

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| ** **          | ** ** | ** **        | ** ** | **Annual**   | ** ** | **Percent**  | ** ** | ** **        | ** **       |
|---------------------|------------|-------------------|------------|--------------|------------|--------------|------------|-------------------|------------------|
| ** **          | ** ** | **Date**          | ** ** | **Increase** | ** ** | **Increase** | ** ** | **Date**          | ** **       |
| **Jurisdiction**    | ** ** | **Requested**     | ** ** | **Granted**  | ** ** | **Granted**  | ** ** | **Effective**     | ** **       |
| Missouri - Electric |       | February  1, 2006 |       | $            | 29,369,397 |         | 9.96       | %                 | January  1, 2007 |   |
| Missouri - Water    |       | June  24, 2005    |       | 469,000      |       | 35.90        | %          | February  4, 2006 |             |
| Kansas - Electric   |       | April 29, 2005    |       | 2,150,000    |       | 12.67        | %          | January 4, 2006   |             |
|                     |            |                   |            |              |            |              |            |                   |                  |  |

 

*Missouri*

On February 1, 2006, we filed a request with theMPSC for an annual increase in base rates for our Missouri electric customersin the amount of $29,513,713, or 9.63%. We also requested transition from theInterim Energy Charge (IEC) from an earlier case to Missouri’s new fueladjustment mechanism. The MPSC issued an order May 2, 2006, however, rulingthat we may have the option of requesting that the IEC be terminated, but wemay not request the implementation of an energy cost recovery mechanism whilethe current IEC is effective. The MPSC issued an order on December 21, 2006granting us an annual increase of $29,369,397 (including regulatoryamortization), or 9.96%, with an effective date of January 1, 2007 andeliminating the IEC. Pursuant to this order, the collected IEC will not berefunded. The increase included an authorized return on equity of 10.9% andincluded our fuel and energy costs as a component of base electric rates. Ofthe increase, approximately $19 million was granted in the form of base rates,with the remainder of approximately $10.4 million granted as regulatoryamortization to provide additional cash flow to enhance the financial supportfor our current generation expansion plan. This regulatory amortization isrelated to our investment in Iatan 2 and also includes our Riverton V84.3A2combustion turbine (Unit 12) and the environmental improvements and upgrades atAsbury and Iatan 1. This order also allowed deferral of any otherpostretirement benefits that are different from those allowed recovery in thisrate case. This treatment is similar to treatment afforded pension costs in ourMarch 2005 rate case. This order also approved regulatory treatment ofadditional liabilities arising from the adoption of FAS 158. We also agreed towrite off $1 million of the cost of our Energy Center 2 construction project.The Missouri jurisdictional portion of this agreement resulted in a pre taxwrite off of $0.8 million in the fourth quarter of 2006.

On December 29, 2006, the Office of Public Counsel(OPC) and intervenors Praxair, Inc. and Explorer Pipeline Company, filed anapplication with the MPSC requesting the MPSC grant a rehearing on most of theissues addressed in the December 2006 Missouri rate case order and many of theprocedural issues. On December 29, 2006, we also filed an application with theMPSC requesting a rehearing on return on equity, capital structure and energycost recovery. A decision by the MPSC is pending.

Praxair and Explorer Pipeline filed a Petition forWrit of Review with the Cole County Circuit Court on January 31, 2007. TheCircuit Court issued a Writ, but the MPSC has moved to have the Writ set asideand the case dismissed. The MPSC’s motion to set aside the Writ is stillpending. On March 20, 2007, Praxair and Explorer filed a motion in the CircuitCourt writ proceeding requesting an immediate stay of the effectiveness of theDecember 2006 Missouri rate case order and the tariffs filed pursuant thereto.The stay motion remains pending before the Circuit Court.

On January 4, 2007, the OPC filed a Petition forWrit of Mandamus with the Missouri Court of Appeals, Western District. We filedsuggestions in opposition to the Petition, as did the MPSC. On March 12, 2007,the Court of Appeals, Western District issued an order denying the OPC’spetition. On March 19, 2007, the OPC filed a Petition for Writ of Mandamus withthe Missouri Supreme Court seeking to have the tariffs filed by us and approvedby the MPSC set aside. On May 31, 2007, the MPSC filed, as ordered by theMissouri Supreme Court, its response to the OPC’s petition. The Court alsoaccepted for filing the answer and suggestions we filed in opposition to theOPC’s petition. The Court ordered the parties to file briefs according to aschedule. The OPC filed its brief on June 29, 2007. The MPSC’s responsive briefwas filed July 27, 2007. The OPC filed a reply brief on August 6, 2007.

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*Kansas*

On April 29, 2005, we filed a request with the Kansas CorporationCommission (KCC) for an increase in base rates for our Kansas electriccustomers in the amount of $4,181,078, or 24.64%. On October 4, 2005, we andthe KCC Staff filed a Motion to Approve Joint Stipulated Settlement Agreement(Agreement) with the KCC. The Agreement called for an annual increase in baserates (which includes historical fuel costs) for our Kansas electric customersof approximately $2,150,000, or 12.67%, the implementation of an Energy CostAdjustment Clause (ECA), a fuel rider that will collect or refund fuel costs inthe future that are above or below the fuel costs included in the base ratesand the adoption of the same depreciation rates approved by the MPSC in our2005 Missouri rate case. In addition, we will be allowed to change ourrecognition of pension costs, deferring the Kansas portion of any costs aboveor below the amount included in this rate case as a regulatory asset orliability. The KCC approved the Agreement on December 9, 2005 with an effectivedate of January 4, 2006. Pursuant to the Agreement, we were to seek KCCapproval of an explicit hedging program in a separate docket by March 1, 2006.However, we requested and received an extension until April 1, 2006. We madethis filing on March 30, 2006 and are awaiting a response from the KCC.

***Gas Segment***

On June 1, 2006, The Empire District Gas Company(EDG) acquired the Missouri natural gas distribution operations of Aquila, Inc.(Missouri Gas). The Missouri Gas properties consist of 44 Missouri communitiesin northwest, north central and west central Missouri. The rates, excluding thecost of gas, are the same as had been in effect at Aquila, Inc. We agreed inthe unanimous stipulation and agreement filed with the MPSC on March 1, 2006and approved on April 18, 2006, to not file a rate increase request for non-gascosts for a period of 36 months following the closing date of the acquisition.We have also agreed to use Aquila Inc.’s current depreciation rates and wereallowed to adopt the pension cost recovery methodology approved in our electricMissouri Rate Case effective March 27, 2005.

A PGA clause is included in our gas rates which allows for the overrecovery or under recovery of actual gas costs compared to the cost of gas inthe PGA rate.  This PGA clause allows usto make rate changes periodically (up to four times) throughout the year inresponse to weather conditions, natural gas prices and supply demands, ratherthan in one possibly extreme change per year. The Actual Cost Adjustment (ACA)is a scheduled yearly filing with the MPSC filed between October 15 andNovember 4 each year. This filing establishes the amount to be recovered fromcustomers for the over/under recovered yearly amounts. A PGA is included in theACA filing. An optional PGA filing without the ACA can be filed up to threetimes each year, provided a filing does not occur within 60 days of a previousfiling. Our last ACA filing was completed on November 3, 2006.

**COMPETITION**

**ElectricSegment**

*SPP-RTO*

OnFebruary 1, 2007, the SPP regional transmission organization (RTO) launched itsenergy imbalance services market (EIS). With the implementation of the SPP RTOEIS market and transmission expansion plans of the SPP RTO, we anticipate thatour continued participation in the SPP will provide long-term benefits to ourcustomers and other stakeholders. Although our experience to date in the EISmarket is limited, it appears that we have realized some modest savings todate. However, we are still unable to quantify the impact of such EISparticipation on our future financial position, results of operation or cashflows at this time.

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In general, the SPP RTO EIS market is expected toprovide economical real time energy for participating members within the SPPregional footprint. Imbalance energy prices will be based on market bids andstatus/availability of dispatchable generation and transmission within the SPPmarket footprint. In addition to energy imbalance service, the SPP RTO willperform a real time security-constrained economic dispatch of all generationvoluntarily offered into the EIS market to the market participants to alsoserve the native load.

We will continue to actively engage with the SPPRTO, other members of the SPP and staffs of our state commissions to evaluatethe impact/value of EIS market participation.

On February 16, 2007, FERC issued a Final Order No.890, which instituted numerous reforms to its Order 888 open accesstransmission pro forma tariff (OATT) which was issued in April 1996. Thepurpose of the Order is (i) to strengthen the OATT to ensure that it betterachieves its original purpose of remedying undue discrimination for theprovision of transmission service, (ii) to provide greater specificity in theOATT to reduce opportunities for the exercise of undue discrimination, makeundue discrimination easier to detect, and facilitate FERC’s enforcement, and(iii) to increase transparency in the rules applicable to planning and use ofthe transmission system. FERC’s actions require modifications to the SPP andour OATTs as well as regional and local transmission planning processes. We areactively working with SPP to modify their OATT and planning processes as wellas working to modify our own OATT for FERC compliance filing later this year.

*FERCMarket Power Order*

In April and July 2004, FERC issued orders regardingnew testing standards for assessing market power by entities that havewholesale market-based rate tariffs filed with the FERC. The parametersincluded in the tests are such that most investor owned electric utilities failthe test within their own control area and are subject to a rebuttablepresumption of market power. Entities with wholesale market based rates tariffsare subject to a triennial filing to test for market power and are required toapply the new testing criteria. FERC determination of market power would resultin the inability for a utility to continue to charge such market-based rates.In September 2004, we submitted amended and updated market power analysesfilings.

On March 3, 2005, the FERC issued an ordercommencing an investigation to determine if we had market power within ourcontrol area based on our failure to meet one of FERC’s wholesale market sharescreens. We filed responses to that order in May and June 2005 and in earlyJanuary 2006. On August 15, 2006, the FERC issued its order accepting Empire’sproposed mitigation to become effective May 16, 2005, subject to a furthercompliance filing as directed in the order. Relying on a series of ordersissued since March 17, 2006 in other proceedings, the FERC rejected our tarifflanguage and directed us to file revisions to our market-based tariff toprovide that service under the tariff applies only to sales outside our controlarea. The FERC directed us to make refunds, with interest, by September 15,2006, which could amount to approximately $0.6 million (excluding interest)covering over a thousand hourly energy sales over the past 18 months tonumerous counterparties external to our system. In response to the order, wefiled a Motion For Extension of time and expedited treatment regarding therefund and requested that such refund be delayed until 15 days after the FERC’sorder on our rehearing request. On September 5, 2006, the FERC granted theMotion For Extension, as requested.

On September 14, 2006, we filed a Request ForRehearing of FERC’s August 15 order regarding the refund and market powermitigation we had proposed. We requested a rehearing and a waiver of the refundrequirement in its entirety.

On June 21, 2007, FERC issued a Final Rule relatedto Market-Based Rates for Wholesales of Electric Energy, Capacity, andAncillary Services by Public Utilities which directly affects our market powerassessment within our service area and Request For Rehearing related to theaforementioned pending potential refund. FERC’s ruling regarding our specificRequest For Rehearing on the refund is still pending and we are evaluating theimpact of this Final Rule on our future business practices.

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*OtherFERC Rulemaking*

Also on June 21, 2007, FERC issued an Advance Noticeof Proposed Rulemaking (ANOPR) on potential reforms to improve operations inorganized wholesale power markets, such as the SPP RTO in which we participate.FERC is seeking comment in the following areas: (i) the role of demand responsein the organized markets, (ii) increasing opportunities for long-term powercontracts, (iii) strengthening market monitoring and (iv) the responsiveness ofRTOs and ISOs to customers and stakeholders. We are evaluating the ANOPR andwill be coordinating our comments with the Edison Electric Institute, SPP andother members of the SPP RTO.

**GasSegment**

Non-residentialgas customers whose annual usage exceeds certain amounts may purchase naturalgas from a source other than EDG. EDG does not have a non-regulated energymarketing service that sells natural gas in competition with outside sources.EDG continues to receive non-gas related revenues for distribution and otherservices if natural gas is purchased from another source by our eligiblecustomers.

**LIQUIDITYAND CAPITAL RESOURCES**

We used approximately $88.8 million of cash forregulated capital expenditures during the six months ended June 30, 2007. Ourprimary source of cash flow for these expenditures during the six months endedJune 30, 2007 was $43.3 million in internally generated funds and$79.8 million in gross proceeds from first mortgage bonds.

**Cash Provided by Operating Activities**

Our net cash flows provided by continuing operatingactivities increased $17.6 million during the six months ended June 30, 2007 ascompared to the six months ended June 30, 2006. Net income increased $1.6million, with another $9.7 million of positive impact from the effect ofadjustments to net income to reconcile to cash flows (primarily the effect ofincreased depreciation and regulatory amortization). A decrease in changes inaccounts payable and accrued liabilities was a primary driver adding a $15.1million positive cash flow effect. During the six months ended June 30, 2006,approximately $8.0 million in electric fuel accounts payable balances werepaid, along with $9.1 million of property taxes. During the six months endedJune 30, 2007, fuel payable balances only decreased by $1.2 million fromDecember 31, 2006, while payables for construction projects grew to $6.4million. Cash flows were also positively impacted by changes in fuel, materialand supplies and customer deposits, interest and taxes. Cash flows werenegatively impacted in 2007 by increased accounts receivable from our insuranceprovider for a payment of a litigation judgment (which was collected in July2007). Last year accounts receivable decreased as a result of a tax refund. Thenegative cash flow impact of $2.5 million for prepaid expenses, other currentassets and deferred charges includes the effect of $6.9 million in cashexpenditures for the ice storm that have been deferred as a regulatory asset,offset by the effect of changes to our regulatory asset accounts.

**Capital Requirements and Investing Activities**

Our net cash flows used in investing activities ofcontinuing operations increased $35.2 million during the six months ended June30, 2007 as compared to the six months ended June 30, 2006 (excluding theeffect of the 2006 gas operations acquisition), primarily reflecting the icestorm and construction expenditures for Plum Point Unit 1 and Iatan 2.

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Ourcapital expenditures totaled approximately $41.7 million during the secondquarter of 2007 compared to approximately $25.1 million for the same period in2006. Our capital expenditures totaled approximately $90.6 million during thesix months ended June 30, 2007 compared to approximately $52.9 million for thesame period in 2006 (excluding the effect of the 2006 gas operationsacquisition). These capital expenditures include AFUDC, capital expenditures toretire assets and benefits from salvage.

Abreakdown of the capital expenditures for the quarter and six months ended June30, 2007 is as follows:
| ** **                                                           | ** ** | **Capital Expenditures** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                           | ** ** | **Quarter Ended**        | ** ** | **Six Months Ended** | ** ** |
| **(in millions)**                                               | ** ** | **June 30, 2007**   | ** ** | **June 30, 2007** | ** ** |
| Distribution and  transmission system additions                      |       | $                             | 15.2       |   | $ | 22.4 |   |
| New Generation –  Riverton combustion turbine                   |       | 2.1                           |       | 3.8 |   |
| New Generation – Plum  Point Energy Station                     |       | 7.3                           |       | 13.6 |   |
| New Generation – Iatan  2                                       |       | 5.8                           |       | 16.2 |   |
| Storm costs*                                                         |       | 1.0                           |       | 17.8 |   |
| Additions and  replacements – Asbury                            |       | 4.9                           |       | 7.5 |   |
| Additions and  replacements – Riverton, Iatan 1 and Ozark Beach |       | 2.1                           |       | 3.9 |   |
| Additions and  replacements - State Line Combined Cycle Unit         |       | 0.1                           |       | 0.1 |   |
| Additions and  replacements – State Line Unit 1                 |       | 0.5                           |       | 0.5 |   |
| Gas segment additions  and replacements                              |       | 0.4                           |       | 0.6 |   |
| Other (including  retirements and salvage -net)*                     |       | 1.2                           |       | 2.4 |   |
| Subtotal                                                             |       | $                             | 40.6       |   | $ | 88.8 |   |
| Non-regulated capital  expenditures (primarily fiber optics)         |       | 1.1                           |       | 1.8 |   |
| TOTAL                                                                |       | 41.7                          |       | 90.6 |   |

 

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*For the sixmonths ended June 30, 2007, storm costs of $17.8 million and Other of $1.4million, which relates to the cost of removal, are specifically related tocapital expenditures associated with the January 2007 ice storm.

Approximately 19% of our cash requirements forcapital expenditures during the second quarter of 2007 were satisfiedinternally from operations (funds provided by operating activities lessdividends paid). We currently expect that internally generated funds willprovide approximately 30% of the funds required for the remainder of ourbudgeted 2007 capital expenditures. We intend to utilize a combination ofshort-term debt, the proceeds of sales of long-term debt and/or common stock(including common stock sold under our Employee Stock Purchase Plan, ourDividend Reinvestment and Stock Purchase Plan, and our 401(k) Plan and ESOP) tofinance additional amounts needed beyond those provided by operating activitiesfor such capital expenditures. We will continue to utilize short-term debt asneeded to support normal operations or other temporary requirements. Forfurther information see Note 7 of “Notes to Consolidated Financial Statements(Unaudited).”

We had estimated that our 2007 capital expenditureswould total approximately $171.0 million (including AFUDC). However, due to theice storm costs capitalized as additions to our utility plant in the first sixmonths of 2007, we now estimate our 2007 capital expenditures to beapproximately $187.5 million.

As of April 10, 2007, our new Siemens V84.3A2combustion turbine, Unit 12 at our Riverton plant, began commercial operation.Riverton Unit 12 will have a summer rated capacity of approximately 148megawatts, increasing our Riverton Plant’s total generating capacity to 284megawatts.

**Financing Activities**

Financing activities from continuing operationsprovided $34.7 million during the six months ended June 30, 2007 as compared to$117.6 million during the same period in 2006. Our 2007 sources include the $80million principal amount of first mortgage bonds issued March 26, 2007. The netproceeds of $79.1 million, less $0.4 million of legal and other financing fees,were added to 

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our general funds and used to pay down short-term indebtedness incurredas a result of our on-going construction program.

Wehave an effective shelf registration statement with the SEC under whichapproximately $243.2 million of our common stock, unsecured debt securities,preference stock and first mortgage bonds remain available for issuance. Ofthis amount, $120 million remains available of the original $200 millionapproved by the MPSC as available for first mortgage bonds. We plan to use aportion of the proceeds from issuances under this shelf to fund a portion ofthe capital expenditures for our new generation projects.

On July 15, 2005, we entered into a $150 millionunsecured revolving credit facility until July 15, 2010. Borrowings (other thanthrough commercial paper) are at the bank’s prime commercial rate or LIBOR plus100 basis points based on our current credit ratings and the pricing schedulein the line of credit facility. On March 14, 2006, we entered into the FirstAmended and Restated Unsecured Credit Agreement which amends and restates the$150 million unsecured revolving credit facility. The principal amount of thecredit facility was increased to $226 million, with the additional $76 millionallocated to support a letter of credit issued in connection with ourparticipation in the Plum Point Energy Station project. This extra $76 millionof availability reduces over a four year period in line with the amount ofconstruction expenditures we owe for Plum Point Unit 1 and was $54.5 million asof August 1, 2007. The unallocated credit facility is used for working capital,general corporate purposes and to back-up our use of commercial paper. Thisfacility requires our total indebtedness (which does not include our notepayable to the securitization trust) to be less than 62.5% of our totalcapitalization at the end of each fiscal quarter and our EBITDA (defined as netincome plus interest, taxes, depreciation and amortization) to be at least twotimes our interest charges (which includes interest on the note payable to thesecuritization trust) for the trailing four fiscal quarters at the end of eachfiscal quarter. Failure to maintain these ratios will result in an event ofdefault under the credit facility and will prohibit us from borrowing fundsthereunder. As of June 30, 2007, we are in compliance with these ratios. Thiscredit facility is also subject to cross-default if we default on in excess of$10 million in the aggregate on our other indebtedness. This arrangement doesnot serve to legally restrict the use of our cash in the normal course ofoperations. There were no outstanding borrowings under this agreement at June30, 2007, however, $49.9 million of the availability thereunder was used atsuch date to back up our outstanding commercial paper.

Restrictions in the EDE mortgage bond indenturecould affect our liquidity. The EDE Mortgage contains a requirement that fornew first mortgage bonds to be issued, our net earnings (as defined in the EDEMortgage) for any twelve consecutive months within the fifteen months precedingissuance must be two times the annual interest requirements (as defined in theEDE Mortgage) on all first mortgage bonds then outstanding and on theprospective issue of new first mortgage bonds. Our earnings for the twelvemonths ended June 30, 2007 would permit us to issue approximately $369.0million of new first mortgage bonds based on this test with an assumed interestrate of 6.5%. In addition to the interest coverage requirement, the EDEMortgage provides that new bonds must be issued against, among other things,retired bonds or 60% of net property additions. At June 30, 2007, we hadretired bonds and net property additions which would enable the issuance of atleast $523.3 million principal amount of bonds if the annual interestrequirements are met. As of June 30, 2007, we are in compliance with allrestrictive covenants of the EDE Mortgage.

The EDG Mortgage contains a requirement that for newfirst mortgage bonds to be issued, the amount of such new first mortgage bondsshall not exceed 75% of the cost of property additions acquired after the dateof the Missouri Gas acquisition. At June 30, 2007, we had property additions of$1.4 million. The mortgage also contains a limitation on the issuance by EDG ofdebt (including first mortgage bonds, but excluding short-term debt incurred inthe ordinary course under working capital facilities) unless, after givingeffect to such issuance, EDG’s ratio of EBITDA (defined as net income plusinterest, taxes, depreciation, amortization and certain other non-cash charges)to interest charges for the most recent four fiscal quarters is at least 2.0 to1. As of June 30, 2007, this test would not allow us to issue any new firstmortgage bonds. The transition service costs incurred in 2006, althoughexpected, negatively impact the coverage ratio.

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As of June 30, 2007, our corporate credit ratingsand the ratings for our securities were as follows:
|                                                  | ** ** | **Fitch** | ** ** | **Moody’s** | ** ** | **Standard & Poor’s** |
|--------------------------------------------------|------------|-----------|------------|------------------|------------|--------------------------------|
| Corporate Credit  Rating                         |       | n/r       |       | Baa2             |       | BBB-                           |
| First Mortgage  Bonds                            |       | BBB+      |       | Baa1             |       | BBB+                           |
| First Mortgage  Bonds - Pollution Control Series |       | AAA       |       | Aaa              |       | AAA                            |
| Senior Notes                                     |       | BBB       |       | Baa2             |       | BB+                            |
| Trust Preferred  Securities                      |       | BBB-      |       | Baa3             |       | BB                             |
| Commercial Paper                                 |       | F2        |       | P-2              |       | A-3                            |
| Outlook                                          |       | Stable    |       | Negative         |       | Stable                         |

 

On September 22, 2005, Standard & Poor’s(S&P), reflecting our announcement of our proposed acquisition of Aquila,Inc.’s Missouri natural gas properties, placed our corporate credit rating oncredit watch with negative implications. S&P stated that the acquisitioncomes in addition to our embarking on a capital spending program that issignificantly higher than historical levels and will be partially debtfinanced. On February 13, 2006, S&P removed our corporate credit ratingfrom credit watch, but placed us on negative outlook. S&P also reduced therating on our commercial paper from A-2 to A-3 on February 21, 2006. Thisreduction made it more difficult for us to issue commercial paper and, as aresult, our short-term debt during the period from February 21, 2006 to June30, 2006, was in the form of borrowings under our revolving credit facility.However, beginning on June 30, 2006, we were able to again issue commercialpaper at the current rating under a new agreement with Wells Fargo Bank. On May17, 2006, S&P lowered our long-term corporate credit rating to BBB- fromBBB, senior secured debt to BBB+ from A-, senior unsecured debt rating to BB+from BBB- and affirmed our short-term rating of A-3. S&P’s downgradereflected their view that our financial measures will be constrained over thenext several years by fuel and power costs that continue to exceed the levelrecoverable in rates, and by our higher-than-historical level of capitalspending, including the acquisition of Missouri Gas. S&P affirmed ourratings on June 8, 2007 with a stable outlook.

Moody’s affirmed our ratings on May 13, 2005 andrevised their rating outlook on us from negative to stable. On January 24,2007, Moody’s again affirmed our ratings but changed their rating outlook on usback to negative. The change to a negative rating outlook reflects Moody’s viewon the longer-term prospects for our ratings given the sizable capital spendingprogram we have committed to through 2010 and the potential for furtherweakness in our credit metrics that could develop during this time.

In****September2005, we entered into an agreement with Fitch Ratings to initiate coverage ofus and to assign ratings to our outstanding debt securities. On December 19,2005, Fitch Ratings initiated coverage and assigned ratings (see table above)with a stable rating outlook. Fitch announced that their ratings reflect ourlow business risk position as a regulated electric utility, a stable serviceterritory and a seemingly improving regulatory environment in Missouri where wereceive approximately 89% of our electric revenues. Fitch reaffirmed theseratings and outlook on April 3, 2007.

**CONTRACTUAL OBLIGATIONS**

Set forth below is information summarizing our contractual obligationsas of June 30, 2007. Not included in these amounts are expected obligationsassociated with our share of the Iatan 2 construction and Iatan 1 environmentalconstruction additions for which we have not yet been billed. Otherpostretirement benefit plans are funded on an ongoing basis to match theircorresponding costs, per regulatory requirements and have been estimated for2007-2011 as noted below. Future pension funding commitments are not expectedto be material over the next 5 years and have not been estimated for lateryears.

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| ** **                                 | ** ** | **Payments Due by Period** | ** ** | ** **                      | ** ** |
|--------------------------------------------|------------|-------------------------------------------|------------|---------------------------------|------------|
| **Contractual Obligations (1)**  | ** ** | **Total**                                 | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
| **(in millions)**                          | ** ** | ** **                                | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Long-term debt (w/o  discount)             |       | $                                         | 492.6      |                            | $          | — |   | $ | 70.0 |   | — |   | $ | 422.6 |   |
| Note payable to  securitization trust      |       | 50.0                                      |       | —                          |       | — |   | — |   | 50.0 |   |
| Interest on long-term  debt                |       | 633.2                                     |       | 34.2                            |       | 66.6 |   | 58.8 |   | 473.6 |   |
| Short-term debt                            |       | 49.9                                      |       | 49.9                            |       | — |   | — |   | — |   |
| Capital lease  obligations                 |       | 1.0                                       |       | 0.3                             |       | 0.6 |   | 0.1 |   | — |   |
| Operating lease  obligations (2)           |       | 4.3                                       |       | 1.5                             |       | 1.5 |   | 0.5 |   | 0.8 |   |
| Electric purchase  obligations (3)         |       | 369.3                                     |       | 84.0                            |       | 115.6 |   | 58.3 |   | 111.4 |   |
| Gas purchase  obligations (4)              |       | 77.2                                      |       | 10.4                            |       | 14.8 |   | 14.5 |   | 37.5 |   |
| Open purchase orders                       |       | 36.7                                      |       | 35.3                            |       | 1.4 |   | — |   | — |   |
| Plum Point                                 |       | 55.0                                      |       | 23.6                            |       | 31.4 |   | — |   | — |   |
| SPP transmission system  upgrades          |       | 12.4                                      |       | 11.6                            |       | 0.8 |   | — |   | — |   |
| Postretirement benefit  obligation funding |       | 18.5                                      |       | 4.2                             |       | 8.0 |   | 6.3 |   | — |   |
| Other long-term  liabilities (5)           |       | 4.3                                       |       | 0.2                             |       | 0.4 |   | 0.4 |   | 3.3 |   |
| Total Contractual Obligations              |       | $                                         | 1,804.4    |                            | $          | 255.2 |   | $ | 311.1 |   | $ | 138.9 |   | $ | 1,099.2 |   |
|                                            |            |                                           |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |

 

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*(1) Some of our contractualobligations have price escalations based on economic indices, but we do notanticipate these escalations to be significant.*

*(2) Excludes payments under ourElk River Wind Farm and Meridian Way Wind Farm agreements, as payments arecontingent upon output of the facilities. Payments under the Elk River WindFarm agreement can run from zero up to a maximum of approximately $16.9 millionper year based on a 20-year average cost and an annual output of 550,000megawatt-hours. Payments under the Meridian Way Wind Farm**agreement**can range from zero to amaximum of approximately $14.6 million per year based on a 20-year average cost*.

*(3) Includes a water usagecontract for our SLCC facility, fuel and purchased power contracts andassociated transportation costs, as well as purchased power for 2010 through2015 for Plum Point.*

*(4) Represents fuel contracts andassociated transportation costs of our gas segment.*

*(5) OtherLong-term Liabilities primarily represents electric facilities charges owed toCity Utilities of Springfield, Missouri of $11,000 per month over 30 yearsstarting in 2007.*

**DIVIDENDS**

Holders of our common stock are entitled todividends if, as, and when declared by the Board of Directors, out of fundslegally available therefore, subject to the prior rights of holders of anyoutstanding cumulative preferred stock and preference stock. Payment ofdividends is determined by our Board of Directors after considering allrelevant factors, including the amount of our retained earnings (which isessentially our accumulated net income less dividend payouts). As of June 30,2007 our retained earnings balance was $13.8 million, compared to $11.7 millionas of June 30, 2006, after paying out $19.4 million in dividends during thefirst six months of 2007. A reduction of our dividend per share, partially orin whole, could have an adverse effect on our common stock price.

Our diluted earnings per share were $0.34 for thesix months ended June 30, 2007 and were $1.39 and $0.92 for the years endedDecember 31, 2006 and 2005, respectively. Dividends paid per share were $0.64for the six months ended June 30, 2007 and $1.28 for each of the years endedDecember 31, 2006 and 2005.

Inaddition, the EDE Mortgage and our Restated Articles contain certain dividendrestrictions. The most restrictive of these is contained in the EDE Mortgage,which provides that we may not declare or pay any dividends (other thandividends payable in shares of our common stock) or make any other distributionon, or purchase (other than with the proceeds of additional common stock financing)any shares of, our common stock if the cumulative aggregate amount thereofafter August 31, 1944 (exclusive of the first quarterly dividend of $98,000paid after said date) would exceed the earned surplus (as defined in the EDEMortgage) accumulated subsequent to August 31, 1944, or the date of successionin the event that another corporation succeeds to our rights and liabilities bya merger or consolidation. As of June 30, 2007, our level of earned surplus 

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did not prevent us fromissuing dividends. In addition, under certain circumstances (including defaultsthereunder), our Junior Subordinated Debentures, 8-1/2% Series due 2031, reflectedas a note payable to securitization trust on our balance sheet, held by EmpireDistrict Electric Trust I, an unconsolidated securitization trust subsidiary,may also restrict our ability to pay dividends on our common stock.

**OFF-BALANCE SHEET ARRANGEMENTS**

We have no off-balance sheet arrangements that haveor are reasonably likely to have a current or future effect on our financialcondition, changes in financial condition, revenues or expenses, results ofoperations, liquidity, capital expenditures or capital resources, other thanoperating leases entered into in the normal course of business.

**CRITICAL ACCOUNTING POLICIES**

See “Item 7 – Managements Discussion and Analysis ofFinancial Condition and Results of Operations” in our Annual Report Form 10-K forthe year ended December 31, 2006 for a discussion of our critical accountingpolicies. There were no changes in these policies in the quarter ended June 30,2007.

**RECENTLY ISSUED ACCOUNTINGSTANDARDS**

SeeNote 2 of “Notes to Consolidated Financial Statements (Unaudited)”.

**Item 3.  Quantitative andQualitative Disclosures about Market Risk**

Market risk is the exposureto a change in the value of a physical asset or financial instrument,derivative or non-derivative, caused by fluctuations in market variables suchas interest rates or commodity prices. We**handle ourcommodity market risk in accordance with our established Energy Risk ManagementPolicy, which typically includes entering into various derivative transactions.We utilize derivatives to manage our gas commodity market risk and to helpmanage our exposure resulting from purchasing most of our natural gas on thevolatile spot market for the generation of power for our native-load customers.See Note 6 of “Notes to Consolidated Financial Statements (Unaudited)” forfurther information.

*Interest Rate Risk**.*We are exposed to changes in interest ratesas a result of financing through our issuance of commercial paper and othershort-term debt. We manage our interest rate exposure by limiting ourvariable-rate exposure (applicable to commercial paper and borrowings under ourunsecured credit agreement) to a certain percentage of total capitalization, asset by policy, and by monitoring the effects of market changes in interestrates.

If market interest ratesaverage 1% more in 2007 than in 2006, our interest expense would increase, andincome before taxes would decrease by less than $800,000. This amount has beendetermined by considering the impact of the hypothetical interest rates on ourhighest month-end commercial paper balance for 2006. These analyses do notconsider the effects of the reduced level of overall economic activity thatcould exist in such an environment. In the event of a significant change ininterest rates, management would likely take actions to further mitigate itsexposure to the change. However, due to the uncertainty of the specific actionsthat would be taken and their possible effects, the sensitivity analysisassumes no changes in our financial structure.

*Commodity Price Risk*. We are exposed to the impact of marketfluctuations in the price and transportation costs of coal, natural gas, andelectricity and employ established policies and procedures to manage the risksassociated with these market fluctuations, including utilizing derivatives.

Wesatisfied 72.5% of our 2006 generation fuel supply need through coal.Approximately 85% of our 2006 coal supply was Western coal. We have contractsand have accepted binding 

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proposals to supply fuel forour coal plants through 2010. These contracts and accepted proposals satisfyapproximately 100% of our anticipated fuel requirements for 2007, 78% for 2008,52% for 2009 and 41% of our 2010 requirements for our Asbury and Riverton coalplants. In order to manage our exposure to fuel prices, future coal supplieswill be acquired using a combination of short-term and long-term contracts.

We are exposed to changes in market prices fornatural gas we must purchase to run our combustion turbine generators. Ournatural gas procurement program is designed to minimize our risk from volatilenatural gas prices. We enter into physical forward and financial derivativecontracts with counterparties relating to our future natural gas requirementsthat lock in prices (with respect to predetermined percentages of our expectedfuture natural gas needs) in an attempt to lessen the volatility in our fuelexpense and improve predictability. We expect that increases in gas prices willbe partially offset by realized gains under financial derivative transactions. Asof July 27, 2007, 91%, or 4.1 million Dths’s, of our anticipated volume ofnatural gas usage for our electric operations for the remainder of 2007 ishedged.

Based on our expected natural gas purchases for ourelectric operations for the next twelve months, if average natural gas pricesshould increase 10% more than the price at June 30, 2007, our natural gasexpense would increase, and income before taxes would decrease by approximately$1.1 million based on our June 30, 2007 total hedged positions for the nexttwelve months.

We attempt to mitigate a portion of our natural gasprice risk associated with our gas segment using physical forward purchaseagreements, storage and derivative contracts. As of July 27, 2007, we have 0.9million Dths in storage on the three pipelines that serve our customers. Thisrepresents 44% of our storage capacity leaving 1.0 million Dths to be injectedinto storage by November 1, 2007 to meet our 95% target. Our long-term hedgestrategy for our gas segment is still in the development process. However, dueto purchased natural gas cost recovery mechanisms for our retail customers,fluctuations in the cost of natural gas have little effect on income.

*Credit Risk*. Credit risk is the risk of financial lossto the Company if counterparties fail to perform their contractual obligations.In order to minimize overall credit risk, we maintain credit policies,including the evaluation of counterparty financial condition and the use ofstandardized agreements that facilitate the netting of cash flows associatedwith a single counterparty. In addition, certain counterparties make availablecollateral in the form of cash held as margin deposits as a result of exceedingagreed-upon credit exposure thresholds or may be required to prepay the transaction.Amounts reported as margin deposit liabilities represent funds we hold thatresult from various trading counterparties exceeding agreed-upon creditexposure thresholds. Amounts reported as margin deposit assets represent fundsheld on deposit by various trading counterparties that resulted from usexceeding agreed-upon credit limits established by the counterparties. As ofJune 30, 2007 and 2006, we had margin deposit assets of $3.8 million and $3.4million, respectively, and margin deposit liabilities of $8.3 million and $5.3million, respectively. On July 6, 2007, the $8.3 million of collateral beingheld from a counterparty was returned to the counterparty and was replaced witha letter of credit which is currently in our favor for $8.4 million, reflectingthe current exposure over the threshold in our agreement with the counterparty.

We sell electricity and gas and provide distributionand transmission services to a diverse group of customers, includingresidential, commercial and industrial customers. Credit risk associated withtrade accounts receivable from energy customers is limited due to the largenumber of customers. In addition, we enter into contracts with variouscompanies in the energy industry for purchases of energy-related commodities,including natural gas in our fuel procurement process.

Our exposure to credit risk is concentratedprimarily within our fuel procurement process, as we transact with a smaller,less diverse group of counterparties and transactions may involve large notionalvolumes and potentially volatile commodity prices. At July 27, 2007, grosscredit exposure related to these transactions totaled $24.4 million, reflectingthe unrealized gains for contracts carried at fair value.

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**Item 4.   Controls and Procedures**

As of the end of the period covered by this report,an evaluation was carried out, under the supervision and with the participationof our management, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures pursuant to Rule 13a-15 of the Securities Exchange Actof 1934. Based upon that evaluation, the Chief Executive Officer and Chief FinancialOfficer concluded that our disclosure controls and procedures were effective,in all material respects, with respect to the recording, processing,summarizing and reporting, within the time periods specified in the SEC’s rulesand forms, of information to be required to be disclosed by us in reports thatwe file or submit under the Exchange Act.

Therehave been no changes in our internal control over financial reporting thatoccurred during the second quarter of 2007 that have materially affected or arereasonably likely to materially affect our internal control over financialreporting except with respect to the integration of EDG, our acquired Missourigas operations.

**PART II.  OTHER INFORMATION**

**Item1A.  Risk Factors.**

Therehave been no material changes to the factors disclosed in Part I, Item 1-A.Risk Factors in our Annual Report on Form 10-K for the year ended December 31,2006.

**Item4.  Submission of Matters to a Vote ofSecurity Holders.**

(a)                                  The Annual Meeting of Stockholders was heldon April 26, 2007.

(b)                                 The following persons were re-electedDirectors of Empire to serve until the 2010 Annual Meeting of Stockholders:

RossC. Hartley (26,854,382 votes for; 609,517 withheld authority).

Julio S. Leon (26,990,424 votes for; 473,475withheld authority).

AllanT. Thoms (27,067,943 votes for; 395,957 withheld authority).

The term of office as Director of the following other Directorscontinued after the meeting:  William L.Gipson, Bill D. Helton, Kenneth R. Allen, D. Randy Laney, Myron W. McKinney, B.Thomas Mueller and Mary M. Posner.

(c)                                  Common stockholders voted to approve thefollowing proposal:

Ratification of theappointment of PricewaterhouseCoopers LLP as Empire’s independent registeredpublic accounting firm for the fiscal year ending December 31, 2007. Passage ofthe proposal required the affirmative vote of a majority of the votes cast. Theproposal received 26,854,880 votes for, which is 88.91% of the outstandingshares and 97.78% of the votes cast, and 449,200 votes against.

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**Item 5.  Other Information.**

For the twelve months ended June 30, 2007, our ratioof earnings to fixed charges was 2.69x. See Exhibit (12) hereto.

**Item 6.  Exhibits.**
| (a)    |   | Exhibits.                                                                                                                                                     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                          |
|   |   | (12) Computation of Ratio of Earnings to Fixed  Charges.                                                                                                      |
|   |   |                                                                                                                                                          |
|   |   | (31)(a) Certification of Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  |
|   |   |                                                                                                                                                          |
|   |   | (31)(b) Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  |
|   |   |                                                                                                                                                          |
|   |   | (32)(a) Certification of Chief Executive Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.* |
|   |   |                                                                                                                                                          |
|   |   | (32)(b) Certification of Chief Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.* |

 

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*****This certification accompanies this Reportpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not bedeemed filed by the Company for purposes of Section 18 or any other provisionof the Securities Exchange Act of 1934, as amended.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
| ** **     | **THE EMPIRE DISTRICT ELECTRIC COMPANY** |
|----------------|------------------------------------------|
|           |                                     | Registrant |   |
|           |                                     |   |
|           |                                     |   |
| ** **     | ** **                               | **By** | **/s/  Gregory A. Knapp** | ** ** |
|           |                                     | Gregory A. Knapp |   |
|           |                                     | Vice President –  Finance and Chief Financial Officer |   |
|           |                                     |   |
|           |                                     |   |
| ** **     | ** **                               | **By** | **/s/  Laurie A. Delano** | ** ** |
|           |                                     | Laurie A. Delano |   |
|           |                                     | Controller,  Assistant Secretary and Assistant Treasurer |   |
|           |                                     |   |   |
| August 8, 2007 |                                     |   |   |
|                |                                          |  |  |  |  |

 

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