EXECUTIVE SUMMARY

We operate our businesses as three segments: electric, gas and other. The Empire District Electric Company (EDE) is an operating public utility engaged in the generation, purchase, transmission, distribution and sale of electricity in parts of Missouri, Kansas, Oklahoma and Arkansas. As part 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 to hold the Missouri Gas assets acquired from Aquila, Inc. on June 1, 2006. It provides natural gas distribution to customers in 44 communities in northwest, north central and west central Missouri. Our other segment consists of our non-regulated businesses, primarily, a 100% interest in Empire District Industries, Inc., a subsidiary for our fiber optics business. During the twelve months ended September 30, 2008, 87.1% of our gross operating revenues were provided from our electric segment (including 0.4% from the sale of water), 12.1% from our gas segment and 0.8% from our other segment.

In December 2006, we sold our 100% interest in Conversant, Inc., a software company that markets Customer Watch, an Internet-based customer information system software. On September

28, 2007, we sold our 100% interest in Fast Freedom, Inc., an Internet service provider. For financial reporting purposes, Conversant and Fast Freedom, all of which were formerly within our other segment, have been classified as discontinued operations and are not included in our segment information.

Earnings

Our basic earnings per share for the three, nine and twelve months ended September 30, 2008 were $0.60, $0.95 and $0.95, respectively, which compared to $0.76, $1.11 and $1.38 for the three, nine and twelve months ended September 30, 2007. For the third quarter of 2008, earnings were lower primarily as a result of much cooler weather than in the third quarter of 2007, which had a negative impact on our revenues, and the dilutive effect of additional shares issued in December 2007. For the nine months and twelve months ended September 30, 2008, earnings were lower primarily as a result of increased electric fuel and purchased power costs, in each case, partially offset by increased electric revenues during the periods.

The following reconciliation of basic earnings per share between the three months, nine months and twelve months ended September 30, 2007 versus September 30, 2008 is a non-GAAP presentation. We believe this information is useful in understanding the fluctuation in earnings per share between the prior and current years. The reconciliation presents the after-tax impact of significant items and components of the statement of operations on a per share basis before the impact of additional stock issuances which is presented separately. Earnings per share for the three months, nine months and twelve months ended September 30, 2007 and 2008 shown in the reconciliation are presented on a GAAP basis and are the same as the amounts included in the statements of operations. This reconciliation may not be comparable to other companies or more useful than the GAAP presentation included in the statements of operations.

                                                 Three Months       Nine months       Twelve Months
                                                     Ended             Ended              Ended
Earnings Per Share - 2007 (Basic)               $          0.76    $         1.11    $          1.38

Revenues
Electric on-system                              $         (0.10 )  $         0.04    $          0.19
Electric off - system and other                               -              0.17               0.22
Gas                                                        0.01              0.02               0.01
Water                                                         -                 -                  -
Other                                                      0.01              0.02               0.02
Expenses
Electric fuel and purchased power                          0.02             (0.35 )            (0.73 )
Cost of natural gas sold and transported                  (0.02 )           (0.01 )             0.01
Regulated - electric segment                              (0.01 )           (0.02 )            (0.05 )
Regulated -gas segment                                    (0.01 )               -                  -
Maintenance and repairs                                   (0.01 )            0.09               0.06
Depreciation and amortization                                 -             (0.04 )            (0.12 )
Other taxes                                                   -             (0.01 )            (0.02 )
Loss on plant allowance                                       -                 -               0.02
Change in effective income tax rates                          -                 -               0.03
Interest charges                                          (0.02 )           (0.05 )            (0.09 )
AFUDC                                                      0.03              0.06               0.07
Gain on sale of assets                                        -                 -               0.03
Other income and deductions                                   -              0.01               0.01
Discontinued operations                                       -                 -              (0.01 )
Dilutive effect of additional shares issued
in December 2007                                          (0.06 )           (0.09 )            (0.08 )
Earnings Per Share - 2008 (Basic)               $          0.60    $         0.95    $          0.95

Recent Activities

Recent Market Events

We have monitored recent market events that could have potential business and accounting issues associated with our operations.

We evaluated our credit exposure with trading counterparties and we do not at this time believe that counterparty default is likely, however, according to published reports, certain of our counterparties continue to be adversely impacted by the current credit crisis. In the event we were to conclude that the counterparties to our hedging arrangements were no longer probable of performance, we would be required to discontinue the use of cash flow hedge treatment for these contracts. However, the fuel adjustment clause authorized in the recent Missouri rate case allows us to record any gains or losses associated with our hedging arrangements as a regulatory asset or liability. Accordingly, we believe any counterparty defaults we may experience should not substantially impact our earnings.

Similar to many companies, we are exposed to the risk of credit rating downgrades from rating agencies; however, we have not received any downgrades of our securities during the recent market turmoil.

Over the last few weeks, we have been constrained in our ability to issue commercial paper. As a result, we have had to borrow under our unsecured revolving credit facility to meet short-term cash flow needs. These borrowings have been at a higher cost than our historical commercial paper rates.

The general market decline has negatively impacted the performance of our pension assets through October 31, 2008. It is possible that we will be required to fund additional amounts in 2009, and such amounts may be significant. We cannot make any determination at this time, however, as to the amount, if any, of such required funding obligations. Such determination will only be made based on the performance of our pension plan assets through December 31, 2008 and our valuation elections at such time.

Regulatory Matters

On October 1, 2007, we filed a request with the MPSC for an annual increase in base rates for our Missouri electric customers in the amount of $34.7 million, or 10.11%. We requested recovery of our investment in the new 150-megawatt combustion turbine, Unit 12, at our Riverton plant, capital expenditures associated with the construction of a selective catalytic reduction system at our Asbury Plant, capital expenditures and expenses related to the January and December 2007 ice storms and other changes in our underlying costs. We also requested implementation of a fuel adjustment clause in Missouri which would permit the distribution to Missouri customers of changes in fuel and purchased power costs.

The MPSC issued an order on July 30, 2008, granting an annual increase in revenues for our Missouri electric customers in the amount of $22.0 million, or 6.7%, based on a 10.8% return on equity. The new rates went into effect August 23, 2008.

The order contains two components. The first component provides an addition to base rates of approximately $27.7 million. This increase in base rates was partially offset by a $5.7 million reduction to regulatory amortization, which is the second component. Regulatory amortization provides us additional cash through rates during the current construction cycle. This construction, which is part of our long-range plan to ensure reliability, includes the facilities at the Riverton Power Plant and Iatan 2 Power Plant, as well as environmental improvements at the Asbury Power Plant and at Iatan 1. The regulatory amortization is now approximately $4.5 million annually and is recorded as depreciation expense.

The MPSC also authorized a fuel adjustment clause for our Missouri customers effective September 1, 2008. The MPSC established a base rate for the recovery of fuel and purchased power expenses used to supply energy. The clause permits the distribution to customers of 95% of the changes in fuel and purchased power costs above or below the base. Off-system sales margins

are also part of the fuel adjustment mechanism. As a result, the off-system sales margin flows back to the customer. Rates related to the fuel adjustment clause will be modified twice a year subject to the review and approval by the MPSC. In accordance with SFAS No. 71 - "Accounting for the Effects of Certain Types of Regulation" (FAS 71), 95% of the difference between the actual cost of fuel and purchased power and the base cost of fuel and purchased power recovered from our customers is recorded as an adjustment to fuel and purchased power expense with a corresponding regulatory asset or a regulatory liability. If the actual fuel and purchased power costs are higher or lower than the base fuel costs billed to customers, 95% of these amounts will be recovered or refunded to our customers when the fuel adjustment clause is modified.

The MPSC order approved a Stipulation and Agreement providing for the recovery of deferred expenses of approximately $14.2 million over a five year period for the 2007 ice storms. In addition, the MPSC order required the implementation of a two-way tracking mechanism for recovery of the costs relating to the new MPSC rules on infrastructure inspection and vegetation management. The mechanism authorized by the MPSC creates a regulatory liability in any year we spend less than the target amount, which has been set at $8.6 million for our Missouri jurisdiction, and a regulatory asset if we spend more than the target amount. Any regulatory asset and liability amounts created using the tracking mechanism will then be netted against each other and taken into account in our next rate case. The MPSC also approved Stipulations and Agreements providing for the continuation of the pension and other post-retirement employee benefits tracking mechanism established in our 2006 and 2007 Missouri rate orders.

The Office of Public Counsel (OPC) and intervenors Praxair, Inc. and Explorer Pipeline Company filed applications for rehearing with the MPSC regarding this order. The MPSC subsequently denied those applications. On October 6, 2008, the OPC and intervenors Praxair, Inc. and Explorer Pipeline Company, filed appeals with the Cole County Circuit Court.

For additional information, see "Rate Matters" below.

Financing

On May 16, 2008, we issued $90 million principal amount of first mortgage bonds. The net proceeds of approximately $89.4 million, less $0.4 million of legal and other financing fees, were added to our general funds and used primarily to pay down short-term indebtedness incurred, in part, as a result of our on-going construction program.

Amendment of EDE Mortgage

On March 11, 2008, we amended the Indenture of Mortgage and Deed of Trust of The Empire District Electric Company (EDE Mortgage) in order to provide us with additional flexibility to pay dividends to our shareholders by increasing the basket available to pay dividends by $10.75 million. The amendment followed the successful completion of a solicitation of consents from the holders of our First Mortgage Bonds outstanding under the EDE Mortgage. We received consents from holders of 94.46% in aggregate principal amount of the outstanding bonds and paid fees of approximately $1.6 million to the consenting bondholders. See "- Dividends" below.

Asbury SCR and Maintenance Outage

We constructed an SCR at Asbury that was completed in November 2007 and placed in service in February 2008. The total cost of the SCR project was approximately $31.0 million (excluding AFUDC), of which $28.1 million was expended through December 31, 2007 with the remainder expended in 2008. This project was also included as part of our Experimental Regulatory Plan approved by the MPSC and its cost is now in base rates in Missouri. We combined this project with our five year Asbury maintenance outage.

Our Asbury units went off-line September 21, 2007 and were expected to be back on-line during the last week of November, during which time we expected to tie in the SCR. However, on December 7, 2007, during the reassembly of the generator, the unit failed inspection. On December 9, 2007 it was determined that corrective action would be necessary and that additional work would

require the unit to remain on outage an additional 60 days. The unit was returned to service on February 10, 2008. We had to replace the energy that would have been generated by our coal-fired units at the Asbury plant with energy generated at our gas plants and with purchased power. After assessing the actual cost of the incremental purchased power and gas-fired generation, we estimate the original planned outage added incremental expenses of approximately $8.7 million for the fourth quarter of 2007. We estimate the extended outage increased expenses an additional $3.5 million in the fourth quarter of 2007 (December 8-December 31, 2007) and an additional $5.8 million in the first quarter of 2008 (January 1-February 10, 2008).

RESULTS OF OPERATIONS

The following discussion analyzes significant changes in the results of operations for the three-month, nine-month and twelve-month periods ended September 30, 2008, compared to the same periods ended September 30, 2007.

The following table represents our results of operations by operating segment for the applicable periods ended September 30:

                           Three Months Ended         Nine Months Ended         Twelve Months Ended
(in millions)              2008          2007         2008          2007         2008          2007

Income from
continuing operations
Electric                $     21.1    $     24.0   $     30.6    $     33.5   $     29.0    $     41.2
Gas                           (1.2 )        (0.9 )        0.6           0.0          1.5           0.5
Other                          0.3           0.1          0.8           0.1          1.1          (0.1 )
Income from
continuing operations   $     20.2    $     23.2   $     32.0    $     33.6   $     31.6    $     41.6
Income from
discontinued
operations                     0.0           0.1          0.0           0.1          0.0           0.2
Net income              $     20.2    $     23.3   $     32.0    $     33.6   $     31.6    $     41.8

Differences could occur due to rounding.

Electric Segment

Overview

Our electric segment income from continuing operations for the third quarter of 2008 was $21.1 million as compared to $24.0 million for the third quarter of 2007.

Electric segment operating revenues comprised approximately 94.7% of our total operating revenues during the third quarter of 2008. Of our total electric operating revenues during the third quarter of 2008, approximately 39.0% were from residential customers, 31.3% from commercial customers, 15.7% from industrial customers, 4.2% from wholesale on-system customers, 6.0% from wholesale off-system transactions, 2.4% from miscellaneous sources, primarily public authorities, and 1.4% from other electric revenues. The breakdown of our customer classes has not significantly changed from the third quarter of 2007.

The amounts and percentage changes from the prior periods in kilowatt-hour ("kWh") sales and operating revenues by major customer class for on-system sales for the applicable periods ended September 30, were as follows:

                         kWh Sales (in millions)          kWh Sales (in millions)           kWh Sales (in millions)
                      3 Months   3 Months              9 Months   9 Months              12 Months   12 Months
                       Ended      Ended        %        Ended      Ended        %         Ended       Ended        %
                        2008       2007     Change*      2008       2007     Change*      2008        2007      Change*
Residential              503.6      567.9     (11.3 )%  1,478.7    1,491.8      (0.9 )%   1,917.4     1,934.7      (0.9 )%
Commercial               446.4      459.4      (2.8 )   1,217.9    1,215.5       0.2      1,613.2     1,589.8       1.5
Industrial               289.3      298.3      (3.0 )     820.9      843.1      (2.6 )    1,088.1     1,119.1       2.8
Wholesale On-System       94.3       98.2      (4.0 )     263.4      260.9       0.9        344.8       340.3       1.3
Other**                   32.1       30.7       4.4        94.1       86.4       9.0        124.5       114.5       8.7
Total On-System        1,365.7    1,454.5      (6.1 )   3,875.0    3,897.7      (0.6 )    5,087.9     5,098.4      (0.2 )

                              Operating Revenues                      Operating Revenues                       Operating Revenues
                                ($ in millions)                         ($ in millions)                          ($ in millions)
                       3 Months      3 Months                  9 Months      9 Months                  12 Months      12 Months
                        Ended         Ended          %          Ended         Ended          %           Ended          Ended          %
                         2008          2007       Change*        2008          2007       Change*        2008           2007        Change*
Residential           $     51.1    $     55.9       (8.6 )%  $    136.1    $    136.8       (0.6 )%  $     173.8    $     172.5        0.8 %
Commercial                  41.0          41.2       (0.6 )        100.5          99.5        1.0           130.0          126.1        3.1
Industrial                  20.5          20.5       (0.3 )         51.9          52.5       (1.0 )          67.2           67.0        0.2
Wholesale On-System          5.5           5.2        5.2           15.0          13.8        8.8            19.7           17.6       11.8
Other**                      3.2           3.0        7.8            8.4           7.5       11.1            10.9            9.7       12.1
Total On-System       $    121.2    $    125.8       (3.7 )   $    311.9    $    310.1        0.6     $     401.6    $     392.9        2.2

**Other kWh sales and other operating revenues include street lighting, other public authorities and interdepartmental usage.

Quarter Ended September 30, 2008 Compared to Quarter Ended September 30, 2007

On-System Operating Revenues and Kilowatt-Hour Sales

KWh sales for our on-system customers decreased 6.1% during the third quarter of 2008 as compared to the third quarter of 2007. Revenues for our on-system customers decreased approximately $4.6 million, or 3.7%. Weather and other related factors decreased revenues by an estimated $8.7 million compared to last year's third quarter. Total cooling degree days (the cumulative number of degrees that the average temperature for each day during that period was above 65† F) for the third quarter of 2008 were 21.7% less than the same period last year and 8.5% less than the 30-year average. Partially offsetting these factors were rate changes, primarily the 2008 Missouri rate increase, which contributed an estimated $2.8 million during the third quarter of 2008, and sales growth which contributed an estimated $1.3 million. We expect our annual electric customer growth to range from approximately 1.1% to 1.6% over the next several years. Our electric customer growth for the twelve months ended September 30, 2008 was 0.5%.

The decrease in residential and commercial kWh sales and revenues during the third quarter of 2008 as compared to the same period in 2007 was primarily due to milder weather in the third quarter of 2008 as compared to 2007, more than offsetting the effect of the 2008 Missouri rate increase that went into effect on August 23, 2008.

The decrease in industrial kWh sales and revenues during the third quarter of 2008 as compared to the same period in 2007 was mainly due to overall economic conditions.

On-system wholesale kWh sales decreased during the third quarter of 2008 reflecting the milder weather and overall economic conditions. Revenues associated with these Federal Energy Regulatory Commission (FERC)-regulated sales, however, increased as a result of the fuel adjustment clause applicable to such sales. This clause permits the distribution to customers of changes in fuel and purchased power costs.

Off-System Electric Transactions

In addition to sales to our own customers, we also sell power to other utilities as available and provide transmission service through our system for transactions between other energy suppliers (including through the Southwest Power Pool (SPP) energy imbalance services (EIS) market). See "- Competition" below. The majority of our off-system sales margins are now included as a component of the fuel adjustment clause in our Missouri, Kansas and Oklahoma jurisdictions. The following table sets forth information regarding these sales and related expenses for the applicable periods ended September 30:

                                    2008                   2007
(in millions)                Three Months Ended     Three Months Ended
EIS revenues                $                3.4   $                3.2
Other revenues                               5.0                    5.6
Total off-system revenues                    8.4                    8.8

EIS expenses                                 2.5                    2.2
Other expenses                               3.5                    3.9
Total off-system expenses                    6.0                    6.1

Net*                        $                2.4   $                2.8

Revenues decreased during the third quarter of 2008 as compared to the third quarter of 2007, primarily due to less market demand for power due to the milder weather in the third quarter of 2008. Total purchased power related expenses are included in our discussion of fuel and purchased power costs below.

Other Electric Revenues

Our other electric revenues consist of transmission revenues, renewable energy credit sales, late payment fees, rent from electric property and miscellaneous electric revenues. These revenues totaled $1.8 million in the third quarter of 2008 (comprised mainly of $0.6 million in transmission revenues and $0.5 million in renewable energy credit sales) as compared to $1.4 million in the third quarter of 2007 (comprised mainly of $0.6 million in transmission revenues and $0.2 million in renewable energy credit sales).

Operating Revenue Deductions

During the third quarter of 2008, total electric segment operating expenses decreased approximately $1.1 million (1.1%) compared with the same period last year. Total fuel and purchased power expense decreased approximately $0.9 million (1.7%) during the third quarter of 2008 as compared to the same period in 2007. Total fuel costs decreased primarily due to decreased generation by our gas-fired units (an estimated $8.8 million) as a result of less demand because of milder weather. Lower prices for both the hedged and unhedged natural gas that we burned in our gas-fired units in the third quarter of 2008 (an estimated $0.6 million) also helped decrease fuel costs. These decreases were partially offset by increased coal costs (an estimated $1.4 million) and increased coal generation (an estimated $0.6 million) in the third quarter of 2008 as compared to the third quarter of 2007. Increased purchased power costs resulted from higher prices (an estimated $3.8 million) and increased purchases (an estimated $0.7 million).

In our latest Missouri rate case order issued July 30, 2008, the MPSC authorized a fuel adjustment clause for our Missouri customers effective September 1, 2008. The MPSC established a base rate for the recovery of fuel and purchased power expenses used to supply energy. The clause permits the distribution to customers of 95% of the changes in fuel and purchased power costs above or below the base. Rates related to the fuel adjustment clause will be modified twice a year subject to the review and approval by the MPSC. In accordance with FAS 71, 95% of the difference between the actual costs of fuel and purchased power and the cost of fuel and purchased power recovered from our customers is recorded as an adjustment to fuel and purchased power expense with a corresponding regulatory asset or a regulatory liability. If the actual costs are higher or lower than the base costs billed to customers, 95% of these amounts will be recovered from or refunded to our customers when the fuel adjustment clause is modified. The table below is a reconciliation of our actual fuel and purchased power cost (netted with the regulatory adjustment) to the fuel and purchased power expense shown on our income statement for the quarter ended September 30, 2008. The regulatory adjustments shown below added $1.8 million to fuel and purchased power expense.