RETIREMENT BENEFITS

12 Months Ended

Dec. 31, 2011

RETIREMENT BENEFITS

RETIREMENT BENEFITS

8.     Retirement Benefits

        We record retirement benefits in accordance with the ASC guidance on accounting for pension and other postretirement benefits, and have recorded the appropriate liabilities to reflect the unfunded status of our benefit plans, with offsetting entries to a regulatory asset, because we believe it is probable the unfunded amount of these plans will be afforded rate recovery. The tax effects of these entries are reflected as deferred tax assets and liabilities and regulatory liabilities.

        Annually we evaluate the discount rate, retirement age, compensation rate increases, expected return on plan assets and healthcare cost trend rate assumptions related to pension benefit and post-retirement medical plan. We utilize an interest rate yield curve to determine an appropriate discount rate. The yield curve is constructed based on the yields on over 500 high-quality, non-callable corporate bonds with maturities between zero and thirty years. A theoretical spot rate curve constructed from this yield curve is then used to discount the annual benefit cash flows of the Empire pension plan and develop a single point discount rate matching the plan's payout structure. In evaluating these assumptions, many factors are considered, including, current market conditions, asset allocations, changes in demographics and the views of leading financial advisors and economists. In evaluating the expected retirement age assumption, we consider the retirement ages of past employees eligible for pension and medical benefits together with expectations of future retirement ages. It is reasonably possible that changes in these assumptions will occur in the near term and, due to the uncertainties inherent in setting assumptions, the effect of such changes could be material to the Company's consolidated financial statements. A roll forward technique is used to value the year ending pension obligations. The roll forward technique values the year-end obligation by rolling forward the beginning-of-year obligation using the demographic assumptions shown below. The economic assumptions are updated as of the end of the year. All of the benefit plans have been measured as of December 31, 2011, consistent with previous years. See Note 1.

Pensions

        Our noncontributory defined benefit pension plan includes all employees meeting minimum age and service requirements. The benefits are based on years of service and the employee's average annual basic earnings. Annual contributions to the plan are at least equal to the greater of either minimum funding requirements of ERISA or the accrued cost of the Plan, as required by the Missouri Public Service Commission. We also have a supplemental retirement program ("SERP") for designated officers of the Company, which we fund from Company funds as the benefits are paid.

        Our net pension liability increased $7.6 million and $4.5 million in 2011 and 2010, respectively. This increase was recorded as an increase in regulatory assets as we believe it is probable of recovery through customer rates based on rate orders received in our jurisdictions. Our contribution is estimated to be approximately $11.1 million for 2012. We expect future pension funding commitments to continue at least at the level of our accrued cost, as required by our regulator. The actual minimum funding requirements will be determined based on the results of the actuarial valuations and, in the case of 2013, the performance of our pension assets during 2012.

        Expected benefit payments are as follows (in millions):

Year	Payments from Trust		Payments from Company Funds
2012	$	8.4	$	0.3
2013		9.0		0.3
2014		9.7		0.3
2015		10.4		0.3
2016		11.1		0.3
2017 – 2021	$	65.9	$	1.9

Other Postretirement Benefits (OPEB)

        We provide certain healthcare and life insurance benefits to eligible retired employees, their dependents and survivors through trusts we have established. Participants generally become eligible for retiree healthcare benefits after reaching age 55 with 5 years of service.

        Our net liability increased $0.6 million and $4.3 million in 2011 and 2010, respectively. The increase was recorded as an increase in regulatory assets as we believe it is probable of recovery through customer rates based on rate orders received in our jurisdictions. Our funding policy is to contribute annually an amount at least equal to the actuarial cost of postretirement benefits. We expect to be required to fund approximately $3.2 million in 2012.

        Estimated benefit payments are as follows (in millions):

Year	Payments from Trust		Expected Federal Subsidy		Payments from Company Funds
2012	$	2.3	$	0.3	$	0.1
2013		2.6		0.3		0.1
2014		2.9		0.4		0.1
2015		3.1		0.4		0.1
2016		3.5		0.5		0.2
2017 – 2021	$	21.3	$	3.1	$	0.9

        The following tables set forth the Company's benefit plans' projected benefit obligations, the fair value of the plans' assets and the funded status (in thousands).

Reconciliation of Projected Benefit Obligations:

	Pension						SERP						OPEB
	2011			2010			2011			2010			2011			2010
Benefit obligation at beginning of year	$	186,840		$	169,055		$	2,895		$	2,575		$	80,938		$	69,911
Service cost		5,596			4,887			93			70			2,266			2,138
Interest cost		10,405			10,115			183			153			4,383			4,329
Net actuarial (gain)/loss		20,869			10,946			1,883			160			(2,136	)		6,454
Plan participant's contribution		—			—			—			—			863			949
Benefits and expenses paid		(8,622	)		(8,163	)		(191	)		(63	)		(3,261	)		(2,966	)
Federal subsidy		—			—			—			—			173			123
Benefit obligation at end of year	$	215,088		$	186,840		$	4,863		$	2,895		$	83,226		$	80,938

Reconciliation of Fair Value of Plan Assets:

	Pension						SERP				OPEB
	2011			2010			2011		2010		2011			2010
Fair value of plan assets at beginning of year	$	120,353		$	107,076		$	—	$	—	$	56,730		$	50,036
Actual return on plan assets — gain/(loss)		(625	)		11,740			—		—		279			4,825
Employer contribution		29,869			9,700			—		—		3,544			3,681
Benefits paid		(8,622	)		(8,163	)		—		—		(3,160	)		(2,845	)
Plan participant's contribution		—			—			—		—		826			917
Federal subsidy		—			—			—		—		165			116
Fair value of plan assets at end of year	$	140,975		$	120,353		$	—	$	—	$	58,384		$	56,730

Reconciliation of Funded Status:

	Pension						SERP						OPEB
	2011			2010			2011			2010			2011			2010
Fair value of plan assets	$	140,975		$	120,353		$	—		$	—		$	58,384		$	56,730
Projected benefit obligations		(215,088	)		(186,840	)		(4,863	)		(2,895	)		(83,226	)		(80,938	)
Funded status	$	(74,113	)	$	(66,487	)	$	(4,863	)	$	(2,895	)	$	(24,842	)	$	(24,208	)

        The employee pension plan accumulated benefit obligation at December 31, 2011 and 2010 is presented in the following table (in thousands):

	Pension Benefits				SERP
	2011		2010		2011		2010
Accumulated benefit obligation	$	191,295	$	164,340	$	4,670	$	2,431

        Amounts recognized in the balance sheet consist of (in thousands):

	Pension				SERP				OPEB
	2011		2010		2011		2010		2011		2010
Accounts Payable and Accrued Liabilities	$	—	$	—	$	311	$	64	$	136	$	121
Pension and other postretirement benefit obligation	$	74,113	$	66,487	$	4,552	$	2,831	$	24,706	$	24,087

        Net periodic benefit pension cost for 2011, 2010 and 2009, some of which is capitalized as a component of labor cost and some of which is deferred as a regulatory asset (see Note 3), is comprised of the following components (in thousands):

Net Periodic Pension Benefit Cost:

	Pension									OPEB
	2011			2010			2009			2011			2010			2009
Service cost	$	5,596		$	4,887		$	4,612		$	2,266		$	2,138		$	1,830
Interest cost		10,405			10,115			9,876			4,383			4,329			3,907
Expected return on plan assets		(11,139	)		(9,847	)		(10,379	)		(4,157	)		(3,844	)		(3,843	)
Amortization of prior service cost(1)		532			531			604			(1,011	)		(1,011	)		(1,011	)
Amortization of actuarial loss(1)		5,494			3,996			3,182			1,762			1,499			869
Net periodic benefit cost	$	10,888		$	9,682		$	7,895		$	3,243		$	3,111		$	1,752

Net Periodic Pension Benefit Cost:

	SERP
	2011			2010			2009
Service cost	$	93		$	70		$	61
Interest cost		183			153			148
Expected return on plan assets		—			—			—
Amortization of prior service cost(1)		(8	)		(8	)		(8	)
Amortization of actuarial loss(1)		171			96			103
Net periodic benefit cost	$	439		$	311		$	304

(1)

Amounts are amortized from our regulatory asset originally recorded upon recognizing our net pension liability on the balance sheet.

        The tables below present the activity in the regulatory asset accounts for the year (in thousands).

			Amount Recognized
Regulatory Assets	Beginning Balance 12/31/10		Current Year Actuarial Loss		Amortization of Actuarial Loss			Amortization of Prior Service (Cost)/Credit			Ending Balance 12/31/11
Pension	$	67,050		32,632		(5,494	)		(532	)	$	93,656
SERP	$	1,291		1,884		(171	)		8		$	3,012
OPEB	$	16,031		1,740		(1,762	)		1,011		$	17,020

        The following table presents the amount of net actuarial gains / losses, transition obligations / assets and prior period service costs in regulatory assets not yet recognized as a component of net periodic benefit cost. It also shows the amounts expected to be recognized in the subsequent year. The following table presents those items for the employee pension plan and other benefits plan at December 31, 2011, and the subsequent twelve-month period (in thousands):

	Pension Benefits				SERP						OPEB
	2011		Subsequent Period		2011			Subsequent Period			2011			Subsequent Period
Net actuarial loss	$	91,144	$	7,799	$	3,051		$	305		$	22,637		$	1,871
Prior service cost (benefit)		2,512		532		(39	)		(8	)		(5,617	)		(1,011	)
Total	$	93,656	$	8,331	$	3,012		$	297		$	17,020		$	860

        The measurement date used to determine the pension and other postretirement benefits is December 31. The assumptions used to determine the benefit obligation and the periodic costs are as follows:

Weighted-average assumptions used to determine the benefit obligation as of December 31:

	Pension Benefits						OPEB
	2011			2010			2011			2010
Discount rate		4.70	%		5.50	%		4.90	%		5.50	%
Rate of compensation increase		3.50	%		4.50	%		3.50	%		4.50	%

Weighted-average assumptions used to determine the net benefit cost (income) as of January 1:

	Pension Benefits									OPEB
	2011			2010			2009			2011			2010			2009
Discount rate		5.50	%		6.00	%		6.30	%		5.50	%		6.00	%		6.30	%
Expected return on plan assets		8.00	%		8.00	%		8.50	%		7.00	%		7.00	%		7.45	%
Rate of compensation increase		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%

        The expected long-term rate of return assumption was based on historical return and adjusted to estimate the potential range of returns for the current asset allocation.

        The assumed 2011 cost trend rate used to measure the expected cost of healthcare benefits and benefit obligation is 8.0%. Each trend rate decreases 0.50% through 2018 to an ultimate rate of 5.0% in 2018 and subsequent years.

        The healthcare cost trend rate affects projected benefit obligations. A 1% change in assumed healthcare cost growth rates would have the following effects (in thousands):

	1% Increase		1% Decrease
Effect on total of service and interest cost	$	1,258	$	(990	)
Effect on post-retirement benefit obligation	$	12,663	$	(10,235	)

Fair value measurements of plan assets

        See Note 15 for a discussion of fair value measurements. The Company believes that it is appropriate for the pension fund to assume a moderate degree of investment risk with diversification of fund assets among different classes (or types) of investments, as appropriate, as a means of reducing risk. Although the pension fund can and will tolerate some variability in market value and rates of return in order to achieve a greater long-term rate of return, primary emphasis is placed on preserving the pension fund's principal. Full discretion is delegated to the investment managers to carry out investment policy within stated guidelines. The guidelines and performance of the managers are monitored by the Company's Investment Committee.

Pension

        We utilize fair value in determining the market-related values for the different classes of our pension plan assets. The market-related value is determined based on smoothing actual asset returns in excess of (or less than) expected return on assets over a 5-year period.

        The Company's primary investment goals for pension fund assets are based around four basic elements:

• 1.

  Preserve capital,

  2.

  Maintain a minimum level of return equal to the actuarial interest rate assumption,

  3.

  Maintain a high degree of flexibility and a low degree of volatility, and

  4.

  Maximize the rate of return while operating within the confines of prudence and safety.

        The target allocations for plan assets are 60%-80% equity securities, 20%-40% debt securities, and 0%-15% in all other types of investments.

        The following fair value hierarchy table presents information about the pension fund assets measured at fair value as of December 31, 2011 (in thousands):

	Fair Value Measurements as of December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Percentage of Plan Assets
Short term investments	$	—	$	1,787	$	—	$	1,787		1.2	%
Equity securities
U.S. equity		57,228		—		—		57,228		40.6	%
International equity		19,151		—		—		19,151		13.6	%
Fixed income
Common collective trust		—		22,904		—		22,904		16.3	%
U.S. corporate debt		—		11,692		—		11,692		8.3	%
U.S. government debt		794		—		—		794		0.6	%
Other types of investments
Equity long/short hedge funds		—		—		27,419		27,419		19.4	%
	$	77,173	$	36,383	$	27,419	$	140,975		100.0	%

	Fair Value Measurements as of December 31, 2010
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Percentage of Plan Assets
Short term investments	$	—	$	1,387	$	—	$	1,387		1.1	%
Equity securities
U.S. equity		47,797		—		—		47,797		39.7	%
International equity		15,876		—		—		15,876		13.2	%
Fixed income
Common collective trust		—		32,955		—		32,955		27.4	%
Other types of investments
Equity long/short hedge funds		—		—		22,338		22,338		18.6	%
	$	63,673	$	34,342	$	22,338	$	120,353		100.0	%

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) — December 31,

	2011			2010
	Equity long/short hedge funds			Equity long/short hedge funds
Beginning Balance, January 1,	$	22,338		$	23,515
Actual return on plan assets:
Relating to assets still held at the reporting date		(669	)		1,423
Relating to assets sold during the period		—			—
Purchases		5,750			—
Sales		—			(2,600	)
Settlements					—
Transfers into and (out of) Level 3		—			—
Ending Balance, December 31,	$	27,419		$	22,338

Permissible Investments

        Listed below are the investment vehicles specifically permitted:

Permissible Investments

Equity Oriented		Fixed Income Oriented and Real Estate
•	Common Stocks	•	Bonds
•	Preferred Stocks	•	GICs, BICs
•	Convertible Preferred Stocks	•	Corporate Bonds (minimum quality rating
•	Convertible Bonds		of Baa or BBB)
•	Covered Options	•	Cash-Equivalent Securities (e.g., U.S.
•	Hedged Equity Funds of Funds		T-Bills, Commercial Paper, etc.)
	protection	•	Certificates of Deposit in institutions with FDIC/FSLIC
		•	Money Market Funds / Bank STIF Funds
		•	Real Estate — Publicly Traded

        The above assets can be held in commingled (mutual) funds as well as privately managed separate accounts.

        Those investments prohibited by the Investment Committee without prior approval are:

Prohibited Investments Requiring Pre-approval

•	Privately Placed Securities	•	Warrants
•	Commodities Futures	•	Short Sales
•	Securities of Empire District	•	Index Options
•	Derivatives

OPEB

        The Company's primary investment goals for the component of the OPEB fund used to pay current benefits are liquidity and safety. The primary investment goals for the component of the OPEB fund used to accumulate funds to provide for payment of benefits after the retirement of plan participants are preservation of the fund with a reasonable rate of return. The target allocations for plan assets are 0% – 10% cash and cash equivalents, 40% – 60% fixed income securities and 40% – 60% in equity. The following fair value hierarchy table presents information about the OPEB fund assets measured at fair value as of December 31, 2011:

	Fair Value Measurements as of December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Percentage of Plan Assets
Cash and cash equivalents	$	1,536	$	—	$	—	$	1,536		2.6	%
Fixed income
U.S. government debt		—		1,839		—		1,839		3.1	%
U.S. corporate debt		—		17,232		—		17,232		29.5	%
Foreign debt		—		1,460		—		1,460		2.5	%
Mutual funds — fixed income		2,107		—		—		2,107		3.6	%
Equity securities
U.S. equity		21,080		—		—		21,080		36.1	%
International equity		1,784		—		—		1,784		3.1	%
Mutual funds — equity		11,075		—		—		11,075		19.0	%
		37,582		20,531		—		58,113
Accrued interest & dividends								271		0.5	%
							$	58,384		100	%

	Fair Value Measurements as of December 31, 2010
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Percentage of Plan Assets
Cash and cash equivalents	$	3,897	$	—	$	—	$	3,897		7.0	%
Fixed income
U.S. government debt		—		4,091		—		4,091		7.2	%
U.S. corporate debt		—		15,156		—		15,156		26.7	%
Foreign debt		—		420		—		420		0.7	%
Mutual funds — fixed income		1,496		—		—		1,496		2.6	%
Equity securities
U.S. equity		17,592		—		—		17,592		31.0	%
International equity		1,274		—		—		1,274		2.2	%
Mutual funds — equity		12,556		—		—		12,556		22.1	%
		36,815		19,667		—		56,482
Accrued interest & dividends								248		0.5	%
							$	56,730		100	%

        The Company's guideline in the management of this fund is to endorse a long-term approach, but not expose the fund to levels of volatility that might adversely affect the value of the assets. Full discretion is delegated to the investment managers to carry out investment policy within stated guidelines. The guidelines and performance of the managers are monitored by the Company's Investment Committee.

Permissible Investments

        Listed below are the investment vehicles specifically permitted:

Permissible Investments

Equity		Fixed Income
•	Common Stocks	•	Cash-Equivalent Securities with a maturity
•	Preferred Stocks		of one-year or less
		•	Bonds
		•	Money Market Funds / Bank STIF Funds
		•	Certificates of Deposit in institutions with FDIC protection
		•	Corporate Bonds (minimum quality rating of A)

        The above assets can be held in commingled (mutual) funds as well as privately managed separate accounts.

        Listed below are those investments prohibited by the Investment Committee:

Prohibited Investments

•	Privately Placed Securities	•	Margin Transactions
•	Commodities Futures	•	Short Sales
•	Securities of Empire District	•	Index Options
•	Derivatives	•	Real Estate and Real Property
•	Instrumentalities in violation of the Prohibited Transactions Standards of ERISA	•	Restricted Stock