ML101260214

Westar Energy, 2009 Annual Financial Report

ML101260214
Person / Time
Site:	Wolf Creek
Issue date:	04/28/2010
From:	Westar Energy
To:	Office of Nuclear Reactor Regulation
References
Download: ML101260214 (84)

Text

WESTAR ENERGY I 2009 ANNUAL REPORT DEAR SHAREHOLDERS In 2009 Westar Energy felt the pairn of the global recession. Because of it and abnofmally mild summer weather, we ended the,year earning only $1.58 per share, which was loWer than we had planned, even though it included a significant, tax benefit not related to our ongoing utility operations. Despite these disappointing earnings, however, our.share priceimprovement and dividends provided investors a 13 percent total return in 2009.

Our ihdudtrial customers were among-those hardest hit,. and they may be the slowest to recover. Industrial electricity sales fell 11 percent from 2008.

The recession hurt wholesale energy, sales too, where both margins and opportunities were depressed. Wholesale energy prices fell to their lowest levels in a decade. In resloonse to these low prices, and in the face of changes in the rules governing competitive' electricity markets, we downsized our energy trading operations. At our core, we remain a back-to-the-basics-electric utility, not an energy trading company.

The coolest summer in more than four decades compounded the economic blow. We had to go back to 1967 to find a summer as cool as that of 2009. ReVenues we typically realize from residential and commercial air conditioning never materialized. ". "

We are not content, however, just to scrape by or become a victim of circumstances. 2009 was a year of outstanding accomplishments, and we laid a firm foundation for the future of your investment. Our confidence in Westar's future is evident in the recent decision by the board of directors to increase the common dividend for the sixth consecutive year. The new dividend of 31 cents per share is 3.3 percent higher than the company's previous quarterly dividend of 30 cents per share, and results in an indicated annual rate of $1.24 per share.

Early in 2009 we completed Emporia Energy Center, a natural gas plant, ahead of schedule, under budget, and with more productive capacity than anticipated. We also completed environmental upgrades at Jeffrey Energy 1-

WESTAR ENERGY 1 2009 ANNUAL REPORT Center, our flagship coal plant, to cut sulfur dioxide emissions more than 95 percent. With the completion of our first wind farms, 2009 was the first year we produced significant, amounts of electricity using wind. We also continue progress on new high voltage transmission lines.

All this new investment to serve our customers means our costs are going up. We've been working'with our regulators to make reasonable increases in our rates. Last year we implemented nearly $200 million in authorized rate increases,, and in January of this year, we received authority to increase them by 'another

$17 million.

Although we are still growing our investment.base, we have been judicious managing, capital spending and mindful of our customers' ability to pay higher prices as they feel the recession's pinch. ,In.the depths of the economic woes a year ago, we cut~spending, plans for 2009-2010 more than half a billion dollars.

As the market has improved, we've cautiously increased our spending plans, but not to the levels prior to the recession. Our ability to adjust our plans in response to economic conditions without sacrificing safe, reliable service demonstrates the merits of our flexible and balanced approach.

Legal requirements, however, constrain our ability to control the amount and timing of some expenditures. For example, Kansas law requires increasing amounts of renewable capacity. We must also continue modifying our coal plants to comply with more stringent air regulations. Earlier this year we announced additional environmental investments at Jeffrey Energy Center, proposed to the court to settle pending litigation stemming from allegations made by the U.S. Environmental Protection Agency. Because we believe we would have eventually made them anyway, we chose to settle on these investments instead of pursuing costly litigation.

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WESTAR ENERGY "1 2009 ANNUAL REPORT In October 2009 we received word from the U.S. Department of Energy that Westar was selected in a highly competitive process to receive a $19 million matching grant for smart grid investments. Our approach is to start with modest yet meaningful steps into technology that has the potential to transform the way we serve and relate to our customers. Besides allowing us to make progress introducing new technology, the grant also makes things easier on our customers' pocketbooks.

No matter what else is happening, we must keep our commitments for service reliability and safety. In 2009 we improved service reliability at our power plants. We held our own on the number of customer interruptions and reduced their length. We improved on 2008's record-setting employee safety accomplishments by working even safer in 2009.

We would be remiss if we closed this letter without recognizing a tremendous milestone we passed December 11, 2009, the day marking Westar's 100th year in business. In a time when companies rise and fall, we are proud to hold the reins of a company that has served customers and provided good returns for investors for over a century. We take seriously the responsibilities you have entrusted to us to run our business today, planning ahead into the next century for growth, fair returns, and safe, reliable service. ..-.

Thanks for your investment and trust.

CharlesQ ChandlerIV Chairman of the Board William B Moore, Presidentand CEO 3-

WESTAR ENERGY I 2009 ANNUAL REPORT 2009 FINANCIAL MEASURES 2009 2008 FINANCIAL DATA (Dollarsin Millions)

INCOME HIGHLIGHTS Revenues ........................ . ............. ................. $ 1,8 58 $1,839 Income from continuing operations ...... ............. . . . . . . . . . . . . . . . . . 14 1 178 Net income attributable to common stock ............. . . . . . . . . . . . . . . . . . 17 4 177 BALANCE SHEET HIGHLIGHTS Total assets ........................ $7,525 $7,443 Common stock equity ................ 2,245 2,186 Capital structure:

Common equity ................ ............. ............. 47% 48%

Preferred stock ................. ............. ............. <1% <1%

Long-term debt ................. ............. ............. 52% 51%

OPERATING. DATA Sales (Thousands of MWh)

Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ,8 72 19 ,714 Wholesale . .................................................. 8,788 9,384 Custom ers ....................................................... 685,000 679,000 COMMON STOCK DATA PER SHARE HIGHLIGHTS Basic earnings per common share .................................. $1.58 $1.69 Dividends declared per com mon share .................................. $1.20 $1.16 Book value per share ........................................... $20.59 $20.18 STOCK PRICE PERFORMANCE Common stock price range:

High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22.30 $25.92 Lo w . . . . . . . . . . . . . . . . . 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14.86 $15.97 Stock price at year end .............................................. $21.72 $20.51 Average equivalent common shares outstanding (in thousands) ............... 109,648 103,958 Dividend yield (based on year end annualized dividend) ..................... 5.5% 5.7%

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WESTAR ENERGY I 2009 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K

[] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2009 OR D] 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 1-3523 WESTAR ENERGY, INC.

(Exact name of registrant as specified in its charter)

Kansas 48-0290150 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 818 South Kansas Avenue, Topeka, Kansas 66612 (785)575-6300 (Address, including Zip code and telephone number, including area code, of registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $5.00 per share New York Stock Exchange First Mortgage Bonds, 6.10% Series due 2047 New York Stock Exchange (Title of each class) (Name of each exchange on which registered)

Securities registered pursuant to Section 12 (g) of the Act:

Preferred Stock, 4-1/2% Series, $100 par value (Title of Class)

Indicate by check mark whether the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act). Yes NI No 0 Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes F] No []

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes IXNo El Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes El No []

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. n]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Act).

Check one: Large accelerated filer [X Accelerated filer E] Non-accelerated filer E] Smaller reporting company ED Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes El No [Z The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $2,040,718,228 at June 30, 2009.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Common Stock, par value $5.00 per share 110,426,540 shares (Class) (Outstanding at February 17, 2010)

DOCUMENTS INCORPORATED BY

REFERENCE:

Description of the document - Part of the Form 10-K Portions of the Westar Energy, Inc. definitive proxy Part III (Item 10 through Item 14) statement to be used in connection with the registrant's (Portions of Item 10 are not incorporated 2009 Annual Meeting of Shareholders by reference and are provided herein) 5-

WESTAR ENERGY. 1'2009 ANNUAL REPORT TABLE OF CONTENTS GLOSSARY OF TERMS Page The followingis a glossary of frequentlyused abbreviations or acronyms that are found throughout this report.

PART I Abbreviation Item 1. Bu sin ess ..................... : ................ 8 or Acronym Definition Item 1A. R isk Factors ................................... 16 AFUDC Allowance for Funds Used Item lB. Unresolved Staff Comments ..................... 18 During Construction Item 2. Properties ............................... 18 ARO. Asset retirement obligation Item 3. Legal Proceedings .............................. 19 BNSF Burlington Northern Santa Fe Item 4. Submission of Matters to aVote Btu British Thermal Units of Security Holders ............................. 19 CO, Carbon Dioxide PART II Codification FASB Accounting Standards Item 5. Market for Registrant's Codification Common Equity and Related COLI Corporate-owned Life Stockholder M att6rs ............................ 19 Insurance Item 6. Selected Financial Data ......................... 20 DOE Department of Energy Item 7. Management's Discussion and DOj Department of Justice Analysis of Financial Condition and Results of Operations .................... .. 20 -DSPP Direct Stock Purchase Plan Item 7A. Quantitative and Qualitative ECRR Environmental Cost Recovery Disclosures About Market Risk ................... 35 Rider .

Item 8. Financial Statements-and EPA Environmental Protection Supplem entary Data ........................... 37 Agency Item 9. Changes in and Disagreements EPS Earnings per share With Accountants on Accounting ERISA Employee Retirement Income and Financial Disclosure ........................ 71 Security Act Item 9A. Controls and Procedures ........................ 71 FASB Financial Accounting Standards Item 9B. Other Information ............................. 71 Board PART III FERC Federal Energy Regulatory Commission Item 10. Directors and Executive Officers of the Registrant ............................... 71 Fitch. Fitch Investors Service Item 11. Executive Compensation ........................ 71 GAAP Generally Accepted Accounting Principles Item 12. Security Ownership of Certain Beneficial Owners and GHG, Greenhouse Gas M anagem ent .................................. 71 INPO Institute of Nuclear Power Item 13. Certain Relationships and Operations Related Transactions ............................ 71 IRS Internal Revenue Service Item 14. Principal Accountant Fees KCC Kansas Corporation and Services ................................... 71 Commission PART IV KCPL Kansas City Power & Light Item 15. Exhibits and Financial Company Statem ent Schedules ........................... 72 KDHE Kansas Department of Health Sign atures ............................................. 79 and Environment KEPCo Kansas Electric Power Cooperative, Inc.

KGE Kansas Gas and Electric Company kV Kilovolt

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WESTAR ENERGY 1 2009 ANNUAL REPORT FORWARD-LOOKING STATEMENTS Ceftain matters discussed in this Annual Report on Form 10-K are "forward-looking statements." The Private Securities Litigation.Reform Act of 1995 has established that these statements qualify for safe harbors from Abbreviation liability. Forward-looking statements may include words like we "believe,"

or Acronym Definition "anticipate," "target," "expect," "pro forma,"" estimate," "intend" and words La Cygne La Cygne Generating Stati on of similar meaning. Forward-looking statements describe ourfuture plans, Lehman Brothers Lehman Brothers Commer cial objectives, expectations or goals. Such statements address future events and conditions concerning matters such as,'but not limited to: amount, type Paper, Inc.

and timing of capital expenditures; earnings; cash flow; liquidity and capital LTISA Plan Long-Term Incentive and S;hare resources; litigation; accounting matfers; possible corporate restructurings, Award Plan acquisitions and dispositions; compliance with debt and other restrictive covenants; interest rates and dividends; environmental matters; regulatory Medicare Act Medicare Prescription matters; nuclear operations; and the overall ecoriomiy of 6ur service area Drug Improvement and and its impact on our customers' demand for electricity and their ability to Modernization Act of 20103 pay for service.

MMBtu Millions of Btu What happens in each case could vary materially from what we expect Moody's Moody's Investors Service because of such things as: the risk of operating.in a heavily regulated industry subject to frequent and uncertain political, legislative, judicial MW Megawatt(s). and regulatory developments at any level of government that can affect MWh Megawatt hour(s) our revenues and costs; unusual weather conditions and their effect on sales of electricity as well as on prices of energy commodities; equipment NEIL Nuclear Electric Insurance damage from storms and extreme weather; economic and capital market Limited conditions, including the impact of inflation, changes in interest rates, the NOx Nitrogen Oxide cost and availability of capital and the market for trading wholesale energy; the impact of changes in market conditions on employee benefit liability NRC Nuclear Regulatory Comm ission calculations, as well as actual and assumed investment returns on invested plan assets; the impact of changes in estimates regarding our Wolf Creek ONEOK' ONEOK, Inc.

Generating Station (Wolf Creek) decommissioning obligation; the ability OTC Over-thý-counter, of our counterparties to make payments as and when due and to perform PCB Polychlorinated Biphenyl as required; the existence of or introduction of competition into markets in which we operate; risks associated with execution of our planned PRB Powder River Basin capital expenditure program, including timing and receipt of regulatory Protection One Protection One, Inc. approvals necessary for planned construction and expansion projects as well as the ability to complete planned construction projects, within the RECA Retail Energy Cost Adjustnnent terms and time frames anticipated; cost, availability and timely provision RSU Restricted Share Unit of equipment, supplies, labor and fuel we need to operate our business; availability of generating capacity.and the performance of our generating RTO Regional Transmission piants; changes in regulation of nuclear generating facilities and nuclear Organization *materials and fuel, including possible shutdown or required modification of nuclear, generating facilities; uncertainty regarding the establishment S&P Standard & Poor's Ratings I- of interim or permanent sites for spent nuclear fuel ýstorage. and disposal; Group h'omeland and information security considerations; wholesale electricity SCR Selective catalytic. reduction .'prices; changes in accounting requirements and other accounting matters; changes in the energy markets in which we participate resulting from SEC Securities and Exchange the development and implementation of real time and next day trading Commission markets, ,and the effect of the retroactive repricing, of transactions in such SPP, Southwest Power Pool markets following execution because of changes or adjustments in market pricing mechanisms by regional transmission organizations (RTOs) and SSCGP Southern Star Central Gas independent system operators; reduced demand for coal-based energy Pipeline because of climate impacts and deve!opment of alternate energy sources; SO 2 Sulfur Dioxide current *and future litigation, regulatory investigations, proceedings or inquiries; other circumstances affecting anticipated operations,. sales and VaR Value-at-Risk costs; and other factors discussed elsewhere in this report, including in VIE Variable interest entity "Item 1A. Risk Factors"and"Item 7. Management's Discussion and Analysis t of Financial Condition and Results of Operations," and in other reports we WCNOC Wolf Creek Nuclear Opera tin fie from time to time with the Securities and Exchange Commission (SEC).

Corporation These lists are not all-inclusive because it is not possible to predict all factors.

Wolf Creek Wolf Creek Generating Sta tion This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter. The reader should not place undue reliance on any forward-looking statement, as forward-looking statements speak only as of the date such statements were made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made.

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WESTAR ENERGY 1 2009 ANNUAL REPORT PART I -Our plans and expectations for 2010 and beyond include:

" The potential to invest an additional $946.0 million of capital ITEM 1. BUSINESS expenditures at our power plants for air emissions projects over the next three years.

GENERAL " In January 2010, we reached an agreement with a third party.to acquire the development rights for a site we believe is capable Overview of supporting up to 500 MW of wind generation. We expect We are the largestelectric utility in Kansas. Unless the context to develop the site in phases with the initial phase potentially otherwise. indicates, all references in this Annual Report on completed by the end' of 2012, sulbject to regulatory approvals Form 10-k to "the company," we,",us," "our" and similar words and the pace of development of new transmission facilities in are to Westar Energy, Inc. and its consolidated subsidiaries. The western Kansas.

term "Westar, Energy" refers to Westar Energy, Inc., a, Kansas

• We expect to complete in 2010 the 345 kV transmission line we corporation incorporated in 1924, alone and not together with its are constructing in central Kansas.

consolidated subsidiaries.

• In 2010, we expect to begin planning and engineering a 345 kV transmission line that will run from a location near Wichita, We provide- electric generation, transmission and distribution Kansas, south to the Kansas-Oklahoma border.

services to approximately 685,000 customers in Kansas. Westar

• Upon approval from the Southwest Power Pool (SPP) Board of Energy provides these services in central and northeastern Kansas, Directors and appropriate regional cost allocation, PrairieXWind including the cities of Topeka, Lawrence, Manhattan, Salina and Transmission, LLC, a joint, ventufe company of which we own Hutchinson: Kansas Gas and Electric Company (KGE), Westar 50%, intends to construct a new substation near Wichita, Kansas, Energy's wholly-owned subsidiary, provides these services in and one near Medicine Lodge; Kansas, as well as a transmission south-central and southeastern Kansas, including the city of line'connecting the two substations. Prairie Wind also plans to Wichita. KGE owns .a 47% interest in Wolf Creek, a nuclear construct a transmission line south to the Kansas-Oklahoma power plant located near Burlington, Kansas. Both Westar Energy border from one of the two Substations.

and KGE conduct business using the name Westar Energy. Our

• We expect to continue improving our distribution system through-corporate headquarters is located at 818 South Kansas Avenue, enhanced vegetation management :as well as equipment and Topeka, Kansas 66612.

process improvements.

Strategy * 'We expect to continue developing programs to better educate Our strategy is to remain a vertically integrated electric utility our customers about the efficient use of energy. One project we meeting the energy needs of our customers reliably at reasonable expect to undertake beginning in 2010 is SmartStar Lawrence, a prices. We strive' to optimize flexibility in our planning and smart grid project based in Ldwrence, Kansas. Under this project, operations to be able to respond quickly to the uncertain and we will install Advanced Metering Infrastructure meters and changing energy and environmental policies, economic conditions, other equipment to give customers the ability to better monitor regulations and technologies currently affecting or related to our' their energy use. We applied for and have been selected by the business. Working constructively with our regulators and public Department of Energy (DOE) to negotiate a matching grant of officials is an important part of our strategy. 'approximately $19.0 million. We expect the total project cost to be approximatelv $39.3 million.

Significant elements of our strategy include environmental upgrades to our coal-fired power plants, the ability to use more natural gas-fired generation, the development of wind generation and the SIGNIFICANT BUSINESS.DEVELOPMENTS building and upgrading of transmission facilities. We also plan to Weather invest significant resources to enhance our distribution system and 'Our electricity sales and revenues are significantly impacted by to develop energy efficiencyprograms. Following is a summary of the weather, mostly in the surhmer, arid particularly during the some of the progress we have made on these significant elements., third quarter. Warmer summer weather results in more demand

" During 2009, we made capital expenditures of $85.2 million at for electricity while cooler summer weather reduces demand, our power plants for air emission controls. " especially among our residential customers.The opposite is true for

" We completed construction of the Emporia Energy Center, a the winter season, although to a lesser extent. The weather in our natural gas-fired peaking power plant comprising approximately " service territory during the third quarter of 2009 was the coolest in 660 megawatts (MW) of capacity, in early 2009 for a total over 40 years. As measured' by cooling degree days, the weather investment of $304.5 million. ' during this period was 14% cooler than the same period in 2008

• Along with third parties, we developed approximately 300 MW and 27% cooler than the 20-year average.

of wind generation facilities at three different sites in Kansas, approximately half of which we own and half of which we Economic Conditions purchase 'under long-term supply contracts. 'These wind Despite improvements in the capital markets and increases in generation facilities began producing energy in late 2008 and

• asset valuations, many aspects of the downturn in the global and early 2009. * . U.S. economy continued to impact our business throughout 2009.

" We continued constructing a 345 kilovolt (W) transmission line 'Most notably, many of our industrial customers continued to in central Kansas. experience reduced production. This resulted in decreased demand

" We are actively engaged in numerous programs to enable -and for electricity from these customers' as evidenced by the 10.8%

educate customers to use energy more efficiently, decrease in industrial sales from 2008 to 2009. Additionally, the Kansas unemployment rate increased from 5.0% in December 2008 to 7.5% in July 2009 before declining to 6.6% in December 2009. We cannot predict when these economic conditions may improve or to

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WESTAR ENERGY I 2009 ANNUAL REPORT what extent they may continue to affect electricity sales, including amount of accredited capacity. The capacity by fuel type is sumn effects that may spill over into residential and. commercial sales, marized below.

and the affect this might have on our consolidated financial results. Capacity " Percent of Fuel Type .  ; (MW) Total Capacity Changes in Prices Coal .................... ........ ............. 3,4 31 50 %

On January 27, 2010, the Kansas Corporation Commission (KCC) Nuclear .............. 545 8 issued an order allowing us to adjust our prices to include costs Natural gas or oil 2,763 41 associated with our investments in natural gas and wind generation Diesel ............... ..... 68 - , 1

-facilities that werenot included in the price increase approved by TotaI ....... I.......... .. ..................... 6,807 100 %

the KCC in its January 21, 2009, order discussed below..The new prices were effective February 2010 and are expected to increase In addition to owning and leasing generating capacity, we also have our annual retail revenues by $17.1 million. two purchase power agreements under which we purchase 146 MW On January 21, 2009, the KCC issued an order expected to increase of wind generation from third parties.

66u 'annual retail prices by, $130.0 million to reflect investments Our aggregate 2009 peak system net load of 4,545 MW occurred on in natural gas generation facilities, wind generation facilities and June 23, 2009. This included 132 MW of potentially interruptible other capital projects, 'costs, to repair damage to our electrical load. Our net generating capacity, combined with firm capacity system, which were previously deferred as a regulatory asset, purchases and sales and the ability to interrupt 132 MW of load, higher operating costs in general and an updated capital structure. provided a capacity margin of 26.0% above system peak respon-The new prices became effdctive on February 3, 2009. sibility at the time of our 2009 peak system net load.

The KCC'and Federal Ernergy Regulatoiy Commissioni (FERC) also Under wholesale agreements, we provide firm generating capacity adjust our prices through the use of price methods that are designed to other entities as set forth below.

to track certain portions of the costs of providing utility service. For additional information, see Note 3 of the Notes to Consolidated Utility(a) Capacity (MW) Period Ending Financial Statements,"Rate Matters and Regulation." MidwestEnergy, Inc.(b) .. ..... .. 125 May 2010 Empire District Electric Company(c) .. ................ .162 May 2010 Tax Settlement Midwest Energy, Inc. ......... ................ ' 130 October 2013 Oklahoma Muniipal Power Authority .............. 61 " December 2013 In January 2009, we reached a settlement with the Internal Revenue ONEOK Energy Services CO....................... 75 December 2015 Service (IRS) for y5ears 2003 and 2004 associated with the re- Mid-Kansas Electric Company, LLC.................. 175 January 2019 characterization of a portion of the loss we incurred on the sale Kansas Power Pool. " 50 ' January 2020 of Protection One, Inc. (Protection One) from a capital loss to Kansas Electric Power Cooperative, Inc. ..... (d) . 182 ' December 2045 an ordinary loss. This settlement resulted in a 2009 net earnings To ta l. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 60 benefit from discontinued operations of $33.7 million, or $0.30 per share, net of $22:8&millioni'we paid Protection One. (1)Under'd Wholesale agreement that expires in May 2027, we provide base load capacity to the city of McPheison, Kansas, and McPherson provides peaking capacity to us. During 2009, we provided approximately 84 MW to, and OPERATIONS received approximately7151 MW from, McPherson.The amount of base load

• capacity provided to McPherson is based on afixed percentageof McPherson's General annualpeaksystem load.

Westar Energy supplies electric energy at retail to approximately (b)We plan to enter into a new wholesale agreement with Midwest Energy, Inc.

368,000 customers in central and northeast Kansas and KGE upon expiration of this agreement.

supplies electric energy at retail to approximately 317,00,*0 customers ( We are uncertain about ftiture plans regardinga new agreement with Empire in south-central and southeastern Kansas. We also supply electric DistrictElectric Company.

(d)We providepower to Kansas Electric Power Cooperative,hnc. (KEPCo) based on energy a'at wholesale to the electric distribution, systems of 31 cities in Kansas and four electric cooperatives in Kansas. We also its load. The amount provided can fluctuatefrom year to year as KEPCo's load changes. The amount provided in the table represents the actual MW provided have contracts for the sale>, purchase or exchange of wholesale during'2009.

electricity with other utilities.'In additioný, we engage,-in energy marketing and purchase and sell electricity in' areas 'outside our retail service territory. " ' -, Generation Mix The effectiveness of a fuel to produce heat is measured in British We have a retail energy cost adjustment (RECA) under which we thermal units (Btu). The higher the Btu content of a fuel the less are permitted to recover in our prices the cost of fuel consumed fuel it: takeý to produce electricity. We measure the quantity' of in generating electricity and purchased power needed to serve our heat cons'umed during 'the generation of electricity in millici'is of retail customers. Through the RECA, we bill our customers for fuel Btu (MMBtu).

and purchased power costs based on a quarter-ahead estimate.

The RECA provides for an annual review by the KCC to reconcile Based on MMBtu, our 2009 fuel mix was 78% coal, 14% nticlear and estimated and actual fuel and purchased'power costs.The KCC uses 7% natural gas, with diesel and oil making up less than 1%. In 2010 this same method as the means by which we refund to customers we expect to use a higher percentage of nuclear fuel because Wolf the margins we realize from market-based wholesale sales. Creek will not have a scheduled refueling and maintenande outage.

Wolf Creek had such an outage in the fall of 2009. Additionally, Generation Capacity. 2009 was the first year our new wind generation facilities produced We have 6,807 MW of accredited generating capacity in service, of a significant amount of wind energy as discussed under"- Wind which 2,586 MW is owned or leased by KGE. See "Item 2. Proper- Generation" below. Our generation mix fluctuates with the ties'5 for additional information on our generating units. While we operation of Wolf Creek, fluctuationfs in fuel costs, plant availability, also own 149 MW of'wind generation facilities, the intermittent customer demand and the cost and availability of power in the nature of this type of production does nht, create any appreciable wholesale market.

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WESTAR ENERGY I 2009 ANNUAL REPORT Fossil Fuel Generation Natural Gas Coal We use natural gas as a primary fuel at our Gordon Evans, Murray Jeffrey Energy Center: The three coal-fired units at Jeffrey Energy Gill, Neosho, Abilene, Hutchinson, Spring Creek and Emporia Center have an aggregate capacity of 2,164 MW, of which we own Energy Centers, at the State Line facility and in the gas turbine and lease a combined 92% share, or 1,991 MW. We have a long- units at Tecumseh Energy Center. We can also use natural gas as term coal supply contract with Foundation Coal West to supply coal a supplemental fuel'in the coal-fired- units at the Lawrence and to Jeffrey Energy Center from surface mines located in the Powder Tecumseh Eniergy Centers. During 2009, we consumed 21.7 million River Basin (PRB) in Wyoming. The contract contains a schedule MMBtu of natural gas for a total cost of $91.7 million. Natural of minimum annual MMBtu delivery quantities. All of the coal gas accounted for approximately 7% of our total MMBtu of fuel used at Jeffrey Energy Center is purchased under this contract. consumed during 2009 and'approximately 19% of our total fuel The contract expires December 31, 2020.,The contract provides for expense. From time to time, we may purchase derivative contracts price escalation based on certain costs of production. The price for in an effort to mitigate the effect of high natural gas prices. For quantities purchased in excess of the scheduled annual minimum additional information on our exposure to commodity. price risks, is subject to renegotiation every five years to provide an adjusted see "Item 7A. Quantitative and Qualitative Disclosures About price for the ensuing five years that reflects then current market Market Risk." .

prices. The next re pricing for those quantities over the scheduled annual minimum will occur in 2013. We maintain natural gas transportation, arrangements for the Abilene and Hutchinson Energy Centers 'withKansas Gas Service, The Burlington Northern Santa Fe (BNSF) and Union. Pacific a division of ONEOK, Inc.'(ONEOK). The AbilLene Energy Center is railroads transport coal for, Jeffrey Energy Center from Wyoming covered under a standard tariff as a 1r4"e industrial transportation under a long-term rail transportation contract. The contract term customer while the Hutchinson Energy Center is covered under continues through December 31, 2013. The contract price is subject a rate agreement. that expires on .April 30, 2010. We plan to to price escalation based on certain costs incurred by the railroads. renegotiate the agreement for the Hutchinson Energy Center prio.r We expect increases in the cost of transporting coal due to higher to its expiration. We meet a portion of our natural gas transportation prices for the items subject to contractual escalation. requirements for the Gordon Evans, Murray Gill, Lawrence, The average delivered cost of coal consumed at Jeffrey Energy Tecumseh and Emporia Energy Centers through firm natural gas Center during 2009 was approximately $1.59 per MMBtu, 06 $26.37 transportation capacity agreements with Southern Star Central Gas per ton. Pipeline (SSCGP). We meet all of the natural gas transportation requirements for the State Line facility through a firm natural gas La Cygne Generating Station: The two coal-fired units at La .Cygne transportation agreement with SSCGP The firm transportation Generating Station (La Cygne) have an aggregate generating agreement that serves the Gordon Evans and Murray Gill Energy capacity of 1,418 MW of which we own or lease a 50% share, Centers extends, through April 1, 202Q, The agreement for the State or 709 MW. La Cygne unit 1 uses a blended fuel mix containing Line facility extends throughKApril 9,_.2017, while the agreement approximately 90% PRB coal and 10% Kansas/Miss*ouri coal, the for the Emporia Energy Center is in, place until December 1, 2028, latter of which is purchased from time to time from Kansas and and is renewable for five-year terms thereafter. We meet all of Missouri producers: La Cygne unit 2 uses PRB coal:The operator Of the natural gas transportation requirements for the Spring Creek La Cygne, Kansas City Power & Light Company (KCPL), arranges Energy Center through an interruptible month-to-month natural coal purchases and transportation services for La Cygne. All of the gas transportation agreement with ONEOK Gas Transportation, LLC.

La Cygne unit 1 and unit 2 PRB coal is supplied through fixed price contracts through 2010 and is'transported under KCPUs Omnibus Diesel and 'Oil Rail Transportation Agreement with the BNSF and Kahsas City Once started with natural gas, the steam units at our Gordon Southern Railroad through 2010. As the PRB coal contracts expire, Evans, Murray Gill, Neosho and Hutchinson Energy'Centers have we anticipate that KCPL will negotiate new supply contracts or the capability to burn No. 6 61l or natural'gas. We use No. 6 oilwhen purchase coal on the spot market. natural gas is unavailable. Duning 20.09, We did not use No. 6 oil.'

During 2009, the avefage delivered cost of coal consumed at La We. also use No. 2 diesel to start some of our coal,generating Cygne unit 1 was approximately $1.39 per MMBtu, or $22.91 per stations, as ,a primary fuel in the Hutchinson No..4 combustion ton. The average delivered cost of coal consumed at La Cygne unit turbine and in our diesel generators. We purchase No. 2 diesel 2 was approximately $1.24 per MMBtu; or $20.48 per ton. in the spot market. We maintain quantities in inventory that we believe will allow us to facilitate economic dispatch of power, satisfy Lawrence and Tecumseh Energy Centers:The coal-fired units located emergency requiirements and protect against reduced availability of at the Lawrence and Tecumseh Energy Centers have an aggregate natural gas for limitedwperiods.

generating capacity of 731 MW. We purchase coal for these two energy centers under a contract with Arch Coal, Inc. Our current During 2009, we consumed 0.3 million MMBtu of diesel at a total contract is expected to provide 100% of the coal requirement for cost of $4.1 million. Diesel accounted for less than 1% of our total these energycenters through 2012. MMBtu of fuel consumed during 2009 and approximately. 1% of our total fuel expense.

BNSF transports coal for these energy centers from Wyoming under a contract that expires in December 20.13., Nuclear Generation During 2009, the average delivered cost of coal consumed in thle General Lawrence units was approximately $1.47 per MMBtu, or $25.93 per Wolf Creek is a 1,160 MW nuclear power plarit located near ton. The average delivered cost of coal consumed in the'Tecumseh Burlington, Kansas. KGE owns a 47% interest in Wolf Creek, or units was approximately $1.45 per MMvIBtu, or $25.67 per ton. 545 MW, which represents 8% of our total generating capacity.

KCPL owns an equal 47% interest and KEPCo holds the remaining 6% interest. The co-owners pay operating,'costs equal to -their percentage ownership: in Wolf Creek.

10i

WESTAR ENERGY I 2009 ANNUAL REPORT In November 2008, the Nuclear Regulatory Commission (NRC) unscheduled plant shutdown due to security, or safety concerns.

approved Wolf Creek Nuclear Operating Corporation's (WCNOC) Those concerns need not be related to Wolf Creek specifically, but request for a 20-year extension of Wolf Creek's operating license could be due to concerns about nuclear power generally, or circum-until 2045. WCNOC operates Wolf Creek for its owners. stances at other nuclear plants in which we have no ownership.

,Fuel Supply. Nuclear Decommissioning Wolf Creek has on hand or under contract all of the uranium .and Nuclear decommissioning is a nuclear industry term for the conversion services needed to operate Wolf Creek through March permanent shutdown of a nuclear power plant and the removal of 2014 and approximately 80% of uranium and. conversion services radioactive components in accordance with the NRC requirements.

after that date through September 2018. The owners also .have The NRC will terminate a plant's license and release the property under contract 100% of the uranium enrichment and fabrication for unrestricted use when a company has reduced the residual services required to operate Wolf Creek through March 2026. radioactivity of a nuclear plant to a level mandated by the NRC.

The NRC requires companies with nuclear plants to prepare WCNOC 'has entered into all uranium, uranium conversion, and formal financial plans. to fund nuclear decommissioning. These uranium enrichment arrangements, a' well as the fabrication agree-, plans are designed so that sufficient funds required for nuclear ments, in the ordinary course of business.

decommissioning will be accumulated prior to the-6xpiration of the Spent Nuclear Fuel and High-Level.Radioactive Waste license of the related nuclear power plant. Wolf Creek files a nuclear Under the Nuclear Waste PolicyAct of 1982,ithe DOE is responsible decommissioning site study with the KCC eVey three years.

for the permanent disposal of spent nuclear fuel. Wolf Creek pays The KCC reviews nuclear decommissioning.plans in two phases.

into a federal Nuclear Waste Fund administered by the DOE a Phase one is the approval of the revised nuclear decommissioning quarterly fee for the future disposal of spent nuclear fuel. Our share study including the estimated costs to decommission the plant.

of the fee, calculated as one-tenth of a cent for each kilowatt-hour Phase two involves the review and approval by the KCC of a of net nuclear generation 'delivered to customtiers, was $3:7 million "funding schedule" prepared by the owner of the nuclear facility in, 2009, $3.5 million in 2008 and $4.4 niilion in 2007.We include detailing how it plans to fund the future-year dollar amount of its, these costs'in fuel'and purchased power expense. .

pro rata share of the plant.

The NRC . continues its technical licensing review of a DOE In August 2009, the KCC approved Wolf Creek's updated nuclear application for authority to construct a national repository for the decommissioning site study. Based on the study, our share of disposal of spent nuclear fuel and high-level radioactive waste at decommissioning costs, including decontamination, dismantling Yucca Mountain, Nevada. In February 2010, the DOE announced its and site restoration, is estimated to be $279.0 million. This amount intent to withdraw the application, which would end the licensing compares to the prior site study estimate of $243.3 million' The site process. Wolf Creek has an on-site storage facility designed tli hold study cost estimate represents the estimate to dceommission Wdlf all spent fuel generated at the plant through 2025 and-believes it will Creek as of the site study year. The actual nuclear decommissioning be able to expand on-site storageeas needed past 2025. We cannot costs may vary from the estimates because of changes in regulations predict when, or if, an alternative disposal site will be available to and technologies as well as changes in costs. for labor, materials receive Wolf Creek's spent nuclear fuel and will continue to monitor and equipment.

this activity..

In the prices we charge, we are allowed to recover nuclear decom-Low-Level Radioactive Waste missioning costs over the life of Wolf Creek, which is through 2045.

Wolf Creek disposes of most of its low-lexýel radioactive waste at an The NRC requires that funds sufficient to meet nuclear decommis-existing third-party repository in Utah. We expect that this"site will sioning obligations be' held in trust. We believe that the KCC remain available to Wolf Creek. In late' 2009, Wolf Creek contracted approved funding level will also be sufficient to' meet the NRC with a waste processor that will process, take title and store in requirement. Our consolidated financial results would be materially another state most of the remainder of Wolf Creek's low-level adversely affected if we'were not allowed to recover in our prices radioactive waste.Should on-site waste storage be needed in the the full amount of the funding requirement; future, Wolf Creek has storage 'capacity on site adequate f6r about four years of plant 'operations. We recovered in our prices and deposited in an external trust fund' for nuclear decommissioning approximately $2.9 million Outages'- in each of 2009, 2008 and 2007. We record our investment in Wolf Creek operates on an 18-monthp-anned refueling and the nuclear decommissioning trust fund at fair value. The fair maintenance outage schedule. Wolf-Creek was shut down for value approximated $112.3 million as of December 31, 2009, and 43 days in 2009 for refueling and m.aintenance. During, outages $85.6 million as of December 31, 2008.

at the plant, we meet our electric demand, primarily witht our other generating units and by purchasing power. As authorized Wind Generation .

by regulators,.we defer and amortize to expense ratably over an Our new wind generation facilities began operation in 2009. We 18-month operating cycle the 'incremental maintenance costs produced 288,254 megawatt hours (MWh) of electricity at our wind incurred for planned refueling outages. Wolf Creek's next refueling generation facilities and purchased an additional 308,498 MWh of and maintenance outage is scheduled for. spring of 2011. wind generation through purchase power agreements during the year. We expect to continue to produce and purchase significant An extended or unscheduled shutdown of Wolf Creek could cause amounts of wind generation in the future. In January 2010, we us to purchase' replacement powIer, rely moreI heavily on our, other reached an agreement with a third party to acquire the development generating units and reduce amounts of power available for us to rights for a site we believe is capable of supporting up to 500 MW sell at wholesale.

of wind generation. We expect to develop the site ini phases with The NRC evaluates, monitors and rates'vanio's inspection findings the initial phase' potentially'completed by the end of 2012, subject and performance indicators for Wolf Creek based on their safety to regulatory approvals and the pace of development of new trans-significance. Although not expected, thl:NRC could impose an rnission' facilities in western Kansas.

11

WESTAR ENERGY, I 2009 ANNUAL REPORT Other Fuel Matters economic dispatch system., It also provides a ready market for the The table below provides our weighted average cost of fuel, includ' purchase and sale of electricity to balance production with demand.

ing transportation costs. We participatein this market. .

2009 2008 2007 Regulation and Our Prices Per MMBtu: Kansas law gives the KCC general regulatory authority over our Nuclear ........................ $ 0.47 $ 0.44 $ 0:43 prices, extensiofis anMl abandonments of service and facilities, the Coal .......  : .......... . . 1.51 - 1.42 1.27 Natural gas. classification of accounts, the issuance of some seciurities and various

... . .............. 4.22 7.77 6.51 Diesel/oil ........................... 15.58 21.01 15.18 other matters. We are also subject to the jurisdiction of FERC, which Per MWh Generation: has authority Over wholesale sales of electricity, the transmission of Nuclear. . . .. ................... $ 4.87 $ 4.57 $ 4:46 electric pdvwer-and the issuance of some securities. We are subject Coal*.. ........................... 16.79 15.75 13.92 to the jurisdiction of the NRC for nuclear plant operations and Natural gas/diesel/oil ................. 48.52 79.50 67.65 All generating stations ............... 17.18 . 18.99 15.51 safety. Regulatory authorities have established various methods permitting adjustments 'to. our prices for the recovery of certain Purchased Power costs. For portions of Our cost of service,, regulators allow us. to adjust our prices periodically by' formula, which reduces the time We purchase electricity in addition to generating it ourselves. between making expenditures and reflecting them in the prices Factors that cause us to make such purchases include planned and we charge customers. However, for the remaining portions of our unscheduled outages at our generating plants, prices for wholesale cost of service, we must file a formal rate case, which lengthens the energy compared to generation costs, extreme weather conditions period of time between making and recovering expenditures.

and other factors. Transmission constraints may limit our ability to bring purchased electricity into our control area, potentially KCC Proceedings requiring us to curtail or interript our customers as permitted by On February.2, 2010, we filed an application *With the KCC to our tariffs. In 2009, purchased power comprised approximate!y adjust our prices to.include.updated transmission. costs as reflected 11% of our total fuel and Purchased power expense. The weighted in our transmission formula rate discussed below If approved by average cost of purchased power per MWh was $35.62 in 2009, regulators, we estimate that this will increase -our annual retail

$58.96 in 2008 and $61.04 in 2007. revenues by $6.4 million. We expect the KCC to issue an order on Energy Marketing Activities our request in March 2010.

We engage in both financial and physical trading with the goal of On January 27, 2010, theKCC issued an order allowing us to adjust managing our commodity price risk, enhancing system reliability our prices to .include, costs associated with, our investments in and increasing profits. We trade electricity and other energy-related natural gas and wind:generation facilities ,that were not included poroducts using financial instruments, including future contracts, in the price increase approved.by the KCC in its January 21, 20Q9, options and swaps, and we trade energy commodity contracts. order discussed below. The new. prices were effective February 2010 ýand are expected to increase our anhual'retail revenues by Competition and Deregulation .

$17.1 million.

FERC requires owners of regulated transmission assets to allow third, parties nondiscriminatory access to. their transmission On September 11, 2009, the KCC issued .an order, effective systems. FERC also requires us to provide transmission services to January 1, 2009, allowing us to establish a regulatory asset or liability others on the same basis as how we use those assets ourselves. to track the cumulative .difference between.current year pension Furthermore, FERC issued an order encouraging the formation and post-retirement benefits expense and the amount of such of RTOs, under which transmission service is aggregated and expense recognized in setting our prices. At the time Of a future rate coordinated across broad regions to better enable competitive case, we expect to amortize such regulatory asset or~liability aspart wholesale power markets. of resetting base rates. ... .

On May 29,2009,.the KCC issued an order allowing us to adjust our Regional Transmission Organization prices to include costs associated with environmental investments We are a member of the SPP, the RTO in our region. The SPP coordinates the operation of our transmission system within an made in 2008. This change went into effect on June' 1, 2009, and is interconnected transmission system that covers all or portions expected toificrease our annual retail revenues by $32.5 million.

of nine states. The SPP collects revenues for the use of each On March 6, 2009,the KCC issued an order allowing us to adjust transmission owner's transmission system. Transmission customers our prices to include updated transmission costs. This change went transmit power purchased and generated for sale or bought for, into effect on March 13, 2009, and ia expected to incredbe our annual resale in the wholesale market throughout the entire SPP system. retail revenues by'$31.8,'mflliori.

Transmission capacity is sold on a first come/first served non:

discriminatory basis. All transmission customers are charged rates On January 21, 2009, the KCC issued an order expected to ificrease applicable to the transmission system in the zone where energy is our annual retail prices by, $130.0 million to reflect investments delivered, including transmission customers that may sell power in. natural gas generation facilities, wind generation facilities and inside our certificated service territory. The 'SPP then distributes other capital projects; costs to repair damage to Our electrical as revenue to transmission owners, less an administrative charge, system, which were previously deferred as a regulatory asset, the amounts it collects from transmission users. We record in other higher operating costs in general and an updated capital structure..

revenue amounts we receive for providing transmission service. The'new price became* effective on February 3, 2009.

Real-Time Energy Imbalance Market FERC Proceed!ings The SPP implemented a real-time energy imbalance market. as Requests for Changes in Rates required by FERC to accommodate financial settlement of energy On October f5, 2009, we filed our updatedtransmission formula rate imbalances within the SPP region. The objective of this real7 which includes projected 2010 transmission capital expenditures time market system is to permit an efficient balancing of energy and operating costs. Our updated transmission formula rate was

-- 12 production and consumption through the use of a least-cost effective January 1, 2010; and is expected to increase our annual

WESTAR ENERGY 1 2009 ANNUAL REPORT transmission revenues by ?$16.8 million. This filing provides the Agency (EPA) allocated annual SO 2 allowances for each affected basis for requesting a change in our-prices for updated transmission unit. An SO 2 allowance is a limited authorization to emit one ton of costs under the jurisdiction of the KCC as noted above. so2 during a calendar year. At the end of each year, each emitting unit must have enough allowances to cover its emissions for that In July and August 2009, FERC. approved our requests to implement year, Allowances are tradable so that operators of affected units a cost-based formula rate for two of,'our.wholesale customers. The that are anticipated to emit SO2'in excess of their allowances may use of a cost-based formula rate allows, us to adjust our prices to purchase allowances in the market in which such allowances are reflect changes in our cost of service: On January 12, 2010, FERC traded. In 2009, we had SO 2 allowances adequate to meet planned issued an order accepting ouir request to implement a cost-generation and we expect to have enough in 2010. In the future based formula rate similar to tiaft described above that would be if we need to,.purchase additional air emission allowances our applicable for sales to other wholesale customers. The cost-based operating' costs would increase. We recover, 'and would expect to formula rate was effective as of Decenmb~r 1, 2009. continue to recover, the cost of such allowances through the RECA.

Requestfor Increase in Revolving Credit Facility The price of air emission allowances is determined by regulations On January 27, 2010, FERC approved our request for authority to and market forces and changes over time.

issue short-term securities and pledge KGE mortgage bonds in We have an agreement with the KDHE to implement a plan to install order to increase the size of Westar Energy's revolving credit facility new equipment to reduce regulated emissions from our generating from $750.0 million to $1.0 billion. We have not yet exercised our fleet. The projects are designed to meet requirements of the Clean authority to increase the size of the facility. AirVisibility Rule and significantly reduce plant emissions.

Environmental Matters While an earlier issued EPA rule on mercury was'vacated by a U.S.

General Court of Appeals ruling, the Obama administration has indicated We are subject to various'fe6deral, state arnd local environmental thhat it intends to enact. stricter, technology-based regulations on laws and regulations. Environmental laws and regulations affecting rmercury emissions. Our costs to comply with.mercury emissiofn power plants are overlapping,'complex, subject to chhnges in inter- requirements could be material.

pretation and'impleriehtatid'n,' and have tended to become more Environmental requirements have been changing substantially and stringent over time. These laws anid regulations relate primarily to have become more, stringent over time. Accordingly, we may be discharges into the air; air quality, discharges of effluents into water, required to further reduce emissions of presently regulated gases the use of water, and the handling, disposal and clean-up of hazard-and substances, such as SO 2, NOx, particulate matter and mercury, ous and non-hazardous substances and wastes* These laws and and we may be required to reduce or limit emissions of gases and regulations require a lengthy and complex process for obtaining licenses, permits and* approvals from governmental agencies for substances not presently regulated (e.g., carbon dioxide (C0 2)).

our new, existing or modified facilities. If we fail to comply with Proposals and bills in those respects include:

such laws, regulaJtions and permits, or fail to. obtain and maintain " the EPA's national ambient air quality standards for particulate necessary, permits, we could be fined ýor otherwise ,sanctioiieid. by matter and ozone, regulators, and such fines or sanctions ,'ifay not be recoverable in " regulations being developed by the EPA that will require emissions our prices. We have incurred and will continue to incur capiiitand controls for mercury and other hazardous air pollutants, other expenditures to comply with environmenrtal laws and regiula-

• additional legislation introduced in the past few years in tions. Certain of these costs--are recoverable through the environ- Congress requiring reductions of presently unregulated gases C

mental cost recovery rider (ECRR), which allows for the more timely related primarily to concerns about climate change, inclusion in retail prices of costs associated with capital expenditures

• state legislation introduced recently that could require mitigation bed directly to' environmental improvements, including those of CO 2 emissions, and required by the Clean Air Act. However, there can be no assurance

• additional requirements regarding storage and disposal of non-that we will be able to recover all such costs from our cust6mers or hazardous fossil fuel combustion materials, including coal ash.

that the costs to comply with existing or future environmental' laws and regulations will not -have a material adverse effect on our If enacted, the impact of these proposed laws and regulations on consolidated financial results:' our consolidated financial results cannot be accurately predicted because of various factors outside our control including, but not Air Emissions limited to, the specific terms of such laws or 'regulations, the The Clean Air Act, state laws and implementing regulations impose, amount and timing of recquired capital expenditures, the cost of any among other things, limitations on pollutants generated during our emission allowances or credits we inay be required to purchase and operations, including sulfur dioxide (SO2), particulate matter and our ability to recover additional capital and operating expenses in nitrogen oxides (NOx). prices. Based on currently available information, we cannot estimate our costs to comply with these proposed laws and regulations, but Certain Kansas Department of Health and Environment"(KDHE) we believe such costs could be material.

regulations applicable to our generating facilities prohibit the emission of SO2 in excess of prescribed levels. In oider to meet these Environmental Legislation standards, wd use low-sulfur coal and natural gas and have equipped On June 26, 2009, the-U.S. House of Representatives passed a bill some of our generatingfatcilities with pollution control equipment. which, if passed by the Senate and signed into law by the President, would require reductions in greenhouse gas (GHG) emissions and',

In addition, we must comply .with the provisions of the Clean Air even beyond that, would impose additional expense for virtually Act Amendments, of 1990 that require a reduction in SO2and NOx.

all such emissions, even those below the stated targeted emission We have-installed continuous emissions monitoring and reporting levels.The bill identifies seven gasses, including CO 2, as GHGs, and equipment in order to meet these requirements. ' introduces a target to reduce GHG emissions 3% below 2005 levels Title IV of the Clean Air Act created an SO allowance and trading .by2012, 17% below 2005 levels by 2020, 42% below 2005 levels .by program as part of the fed~ral acid rain -programi. Under the 2030 and 83% below 2005 levels by 2050. The bill also mandaies allowance and trading programr., the Environmental Protection that retail electric utilities receive 6% of their power from renewable 13-

WESTAR ENERGY I 2009 ANNUAL REPORT sources by 2012, with this requirement increasing to 20%.by 2020; outcomes resulting from interpretation of existing regulations, in certain circumstances, a portion of this requirement could be new regulations, legislation and the manner in which we operate satisfied through energy efficiency measures. On September '30, the plants. In addition to the capital investment, in the event we 2009, similar legislation was introduced in the U.SI Senate. The install new equipment, such equipment may cause us to incur targets for GHG emission reductions under the Senate bill are 3% significant increases in annual .operating and maintenance expense below 2005 levels by 2012, 20% below 2005 levels by 2020, 42% and ma*y reduce. the net produ'ction, reliability and availability of below 2005 levels by 2030 and 83% .below 2005 levels by 2050. the plants. The degree f6 which'We will need to reduce emissions and the timing of 'when such 6miSsions controls may be required Oh April 17, 2009, the Administrator of the EPA issued a proposed is uncertain. Additionally,[our [ability to access capital markets and finding that GHG emissions from mobile sources cause or the availability of iriateri'als,"'ecqiipmreent and contractors may affect contribute to air pollution that endangers the public health and the'timing and ultimate amount ofthese capital investments. Our welfare. The endangerment finding was proposed in response to a estimated capital expenditires' associated with environmental U.S, Supreme Court's ruling jn April 2007 that GHGs are pollutants improvements for 2010-201.2. are as shown in the following table.

as defined in the CleanAirAct. If the EPA proposal becomes final, the We prepare these estimates for plarining purposes and revise them EPA will be required to enact GHG emission standards for mobile from time to time.

sources. On September 15, 2009, the EPA and the U.S. Department of Transportation released a proposed joint rule that would regulate Year Dollar Amount GHG emissions from passenger cars and light trucks. If the nile (InThousands) becomes final, it may render GHGs, including C0 2, "subject. to 2010 .. " $181,200 regulation" under the Clean Air Act. On September 22, 2009, the 20 1 1 . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . .. .. . 3 50 ,10 0 EPA released its final rule requiring mandatory reporting of GHG 2012 .... I " 414,700 emissions from all economic sectors. Our generating 'facilities Total .. . $ 946,000 are subject to these new reporting requirements. In addition, on September 30, 2009, the EPA issued a proposed rule under th4 The ECRR 'all6ws for the more timely, inclusion, in .retail prices Clean Air Act and indicated its expectation that it would enact the costs of capital expenditures associated with environmental regulations to control GHG emissions. improvements, including those required by the Federal Clean Air There is substantial uncertainty with respect to whether U.S. Act. In order to change our prices to recognize increased operating federal GHG. legislation will be enacted into law or whether and' maintenance costs, .however, we must still file a general rate the EPA will regulate GHG emissions, and there is additional case with the KCC.

uncertainty regarding the final provisions and implementation' of EPA Lawsuit any potential U.S. federal GHG legislation or EPA rules regulating Unde Section 11.4,(a) of the Federal Clean Air Act,' the EPA is GHG emissions. We cannot predict with certainty the outcome of conducting investigations nationwide to determine whether the legislative and rulemaking processes or a specific related impact modiications at coal-fifed power plants are subject 'to the New on our generating facilities.

Source Reviev permitting program' o New Source Performance The EPA may develop new regulations, and Congress may pass Standards. These Investigations focus on whether projects at coal-new legislation, that impose additional requirements on facilities fir~d plants w-ere ioutine maintenance or whether the projects were that store or dispose of non-hazardous fossil fuel combustion substantial modifications that couild reasonably have been expected matfrials, including coal ash. If so, we may be required to .change to result'inf a significant.net increase in.erhissions. The New Source our current practices and.incur additional capital expenditures and/ Review program requires companies to obtain permits' and, if or operating expenses to comply with these regulations. necessary, install control eqiipment to address emissions when making a major modification. Or a change, in operation if either is On May 22, 2009, the State of Kansas enacted legislation thaf expected to cause a significant net increase in emissions.

mandates, among" other requirements, that more energy be derived from renewable sources. According to the law, in years On January 22, 2004, the EPA :notified us that certain projects 2011 through 2015 net renewable generation capacity must be completed at Jeffrey Energy Center violated certain requirements 10% of the average peak demand for the three prior years. This of the New Source Review program.. On February 4, 2009, the requirement increases to 15% for years 2016 through 2019 and 20% Department of Justice (DOJ), on behalf of the EPA, filed a lawsuit for 2020 and thereafter. A further provision of the law is that the against us in U.S. District Court in the District of Kansas asserting KCC may elect not to enforce these requirements if they result in substantially the sarhe clairris. On January 25, 2010, we announced more than a 1% increase in our prices. Along with third parties, We a settlement of the lawsuit. The settlement was filed with the court, developed approximately 300 MW of qualifying wind generation seeking its approval. The settlement Orovides for us to .install -a facilities that began producing energy in late 2008 and early 2009. selective catalytic reduction (SCR) system on 'one of the' three We estimate that we may need to add about 150 to 200 MW of Jeffrey Energy Center coal units by the end of 2014. We have not additional renewable generating capacity to meet the 2011 deadline. yet engineered this project; however,, our preliminary estimate of In January 2010, we reached an agreement with a third party to the cost of this SCR is approximately $200.0 million. Depending acquire the development rights for a site we believe is capable of Qn the NOx emission reductions attained by the single SCR and supporting up to 500 MW of wind generation. We expect to develop attainable through, the installation of other controls on the other the site in phases with the initial phase. potentially completed by two Jeffrey Energy Center coal units, a gecond SCR system vWould the end of 2012, subject to regulatory approvals and the pace of be installed on another Jeffrey Energy Center coal unit 'by the end development of new transmission facilities in western Kansas. of 2016, if needed to meet NOx reduction targets. Recovery of costs to install these systems is subject to the approval of our regulators.

Environmental Costs We believe these costs are appropriate for inclusion in the prices We will continue to make significant capital expenditures at our we are allowed to charge our customers. We will also invest power plants to reduce undesirable emissions. The amount of these $5.0 million over six years in environmental mitigation 'projects expenditures could materially increase or decrease depending which we will own and $1.0 million in environm~ental mitigation on the timing and nature of required investments; the specific projects that will be owned by a qualifying third party. We will also

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WESTAR ENERGY 1 2009 ANNUAL REPORT pay a $3.0 million civil penalty. Accordingly, 'we have recorded a Our liability for the former manufactured g~s sites'.identified iin

$4.0 million liability pursuant to the terms of the settlement, We Missouri is limited to $7.5 million by the terms of an environmental expect the court to make a decision in 2010 following the expiration indemnity agreement with the purchaser of our forrher Missouri assets.

of a period for public comments on March 1, 2010. If the court does not approve the settlement,. and the lawsuit proceeds to trial, a SEASONALITY decision in favor of the DOJ and EPA could require us to update or install additional emissions controls at Jeffrey Energy Center, and As a summer peaking utility, our revenues are seasonal. The third the additional controls could be more extensive than those required quarter typically accounts for our greatest revenues. Our sales are by the'current settlement: Additionally, we could be required to affected by weather conditions, the economy of our service territory update br install emissionb controls at our other c6al:fired plants, and the performance of our customers.

pay fines Or penalties or*take other remedial action. Our ultiminate costs to resolve the lawsuit could be material and we wxould expect EMPLOYEES to incur substantial legal fees and expenses related to the defense of the lawsuit. We are not able to estimate the possible loss or range As of' February 17, 2010, we had 2,397 employees. Our current of loss if the court were to not approve the settlement. contract with Local 304 and Local 1523 of the' International Brotherhood of Electrical Workers extends through June 30, 2011.

Manufactured Gas Sites The contract covered 1,336 employees as of February 17, 2010.

We have been identified as being partially responsible for remediating a number of former manufactured gas sites located in ACCESS TO COMPANY INFORMATION Kansas and Missouri. We and the KDHE entered into a consent agreement governing all future work at the Kansas sites. Under Our Annual Reports'on Form 10-K, Quarterly Reports on Form the terms of the consent agreement, we agreed to investigate and, 10-Q and Current Reports on Form 8-K are available free of charge if necessary, remediate these sites. Pursuant to an environmental either through our Internet website at www.westarenergy.com indemnity agreement'with ONEOK, the current owner of some or by responding to requests addressed to our investor relations of the sites, ONEOK assumed total liability for remediation of department. These reports are available as soon as reasonably seven sites and we*share liability for'remediation with ONEOK for practicable after such material is electronically filed with, or five sites. Our total liability for the five shared sites is capped at furnished to, the SEC. The, information contained on our Internet

$3.8 million. We have sole responsibility for rerfiediation with website is not part of this document.

respect to three sites.

EXECUTIVE OFFICERS OF THE COMPANY Name " Age Present Office Other Offices or Positions Held During the Past Five Years William B. Moore 57 Director, President and Chief Executive Officer Westar Energy, Inc.

(since July 2007) President and Chief Operating Officer (March 2006 to June 2007) .

Executive Vice President and Chief Operating Officer (December 2002 to March 2006)

James J. Ludwig 51 Executive Vice President, Public Affairs and Westar Energy, Inc.

Consumer Services (since July 2007) Vice President, Regulatory and Public Affairs (March 2006 to June 2007)

Vice President, Public Affairs (January 2003 to March 2006)

Mark A. Ruelle 48 Executive-Vice President and Chief FinancialOfficer (since January 2003)

Douglas R. Sterbenz 46. . Executive Vice Preside*ht and Chief Operating Officer Westar Energy, Inc.

(since July 2007) . ,., . Executive Vice President, Generation and Marketing (March 2006 td June 2007)

Senior Vice President, Generation and Marketing (October 2001 to March 2006)

Jeffrey L.Beasley 51 Vice President, Corporate Compliance and Westar Energy, Inc.

Internal Audit (since September 2007) Executive Director, Corporate Compliance and Internal Audit (September 2006 to September 2007)

Director, Corporate Finance (March 2005 to September 2006)

Director, Accounting Services (June 2003 to March 2005)

Larry D. rick 53 . . Vice President, General Counsel and..,. ,. * . ." .

Corporate Secretary (since February 2003)i Michael Lennen 64 Vice President, Regulatory Affairs Morris, Laing, Evans, Brock & Kennedy, Chartered (since July 2007) .Partner (January 1990 to July 2007).

Lee Wages 61. Vice President, Controller (since December 2001)

Executive' officers serve at the pleasure of the 'board of directors. officer-and other persons pursuant to which he was appointed as There are no family relationships among any of the executive officers, an executive officer. f nor any arrangements or understandings between any executive 15-

WESTAR ENERGY 1 2009 ANNUAL REPORT ITEM IA. RISK FACTORS We cannot predict the outcome of any rate review or the actions of our regulators. The ultimate outcome of rate. proceedings, or We operate in market and regulatory environments that involve delays in implementation of new prices regarding costs .that we sighificant risks, many of Which are beyond our control. In addi-have already incurred, could have a significant effect on our ability tion to the other information in this Form 10-K, including to recover costs and could have a material. adverse effect on our "Item 1. Business" and "Item 7. Management's Discussion and consolidated financial results. .

• Analysis of Financial Condition and Results of Operations," and in other documents we file with the SEC from time to time, the Significant decisions about capital investments are based following factors may affect our results of operations and cash flows on long-term demand forecasts incorporating assumptions and the market prices of our publicly traded securities. These factors about multiple, uncertain factors. Our actual experience may cause results to differ materially from those expressed in any may differ significantly from our assumptions, which forward-looking statements made by us or on our behalf. The may adversely impact our consolidated financial results.

factors listed below are not intended to be an exhaustive discussion We use long-term demand forecasts to determine the timing and of all such risks, and the statements below must be read together adequacy of our energy and energy delivery resources. Long-term with factors discussed elsewhere in this document and in our other forecasts involve risks because they rely on assumptions we make filings with the SEC. concerning uncertain factors including weather, technological change, economic conditions, regulatory requirements, social Weather conditions, including mild and severe weather, pressures and the responsiveness of customers' electricity demand may adversely impact our consolidated financial results.

to conservation measures and prices. Actual. future., demand Weather conditions directly influience the demand, foi electhicity. depends on these and other factors and may vary from our forecasts.

Our customers use electricity.for heating in winter months and If our actual experience varies significantly from our forecasts, our cooling in summer months. Because of air conditioning demand, financial results may be adversely affected.

typically we produce our highest revenues in the third quarter.

Milder temperatures reduce demand for electricity and have a Our ability to fund our capital expenditures and meet corresponding effect on our revenues. Unusually mild-weather in our working capital and liquidity needs'may be limited the future could adversely affect our consolidated financial results. by conditions in the bank and'capital markets or by our credit ratings or the market price of Westar Energy's In addition, severe weather conditions can produce storms that common stock.

can inflict heavy damage to our equipment and facilities that can To fund our capital expenditures and for working 'capital and require us to incur additional operating and maintenance expense liquidity, we rely on access to capital markets and to short-term and additional capital expenditures. Our prices may. not always credit. Disruption in capital markets, deterioration in the financial be adjusted timely and adequately to reflect these higher costs.

condition of the financial institutiofls on which 'weerely, any credit Additionally, because many of our power plants use water for cooling, rating downgrade or any decrease in the market price of Westar severe drought conditions could result in limited power production.

Energy's common stock may make capital more difficult and costly Our prices are subject to regulatory review and may not for us to obtain, may restrict liquidity available to us, may require prove adequate. us to defer or limit capital investments or operating initiatives, We must obtain from state and federal regulators the authority to or may reduce the value of our financial assets. These and other establish terms and prices for our services. The KCC and, for most related effects may have an adverse impact on our business and of our wholesale customers, FERC, use a cost-of-service'approach financial results, including our ability to pay dividends and to make that takes into account operating expenses, fixed obligations and investments or undertake programs necessary to meet regulatory recovery of and return on capital investments. Using this approach, mandates and customer demand.

the KCC and FERC set prices at levels calculated to recover these. Our planned capital investment for the next few years is costs and a permitted return on investment. Except for wholesale. large in relation to our.size, subjecting us to significant transactions for which the price is not so regulated, and except to the financial and operational risks.

extent the KCC and FERC permit us to modify our prices by using. Our anticipated capital, expenditures for 2010 through 2012 are approved formulae, our prices generally remain fixed until changed approximately $2.4 billion. In addition to risks discussed above following a rate review. Further, the adjustments and .formulae associated with recovering capital investments through our prices, may be modified, limited or eliminated by regulatory or legislative and risks associated with our reliance on the capital markets and actions.-We may apply to change our prices or intervening parties short-term credit to fund those investments, our capital expenditure may request that our prices be'reviewVed for possible adjustment.

program poses operational risks, including:

Rate proceedings through which our prices and terms of service are m.shortages, disruption in the delivery of, and inconsistent quality determined typically involve numerous parties including electricity of equipment; materials and labor; consumers, consumer advocacy groups and governmental entities,

• contractor or supplier non-performance; some of whom frequently take positions adverse to us. The

• delays in or failure to receive ,necessary permits, approvals and decision making process used in these proceedings may or may other regulatory authorizations; not be subject to statutory timelines- and in any event regulators'

• impacts of new and existing laws and regulations, including decisions may be appealed to the courts by us or other parties to environmental laws*regulations and permit requirements;.

the proceedings. These factors may lead to uncertainty, and, delay

• adverse weather;,

in implementing changes to our prices or terms of service. There

• unforeseen engineering problems or changes in project design can be no assurance that our regulators will judge ail of our costs or scope; to have been prudently incurred. A finding that costs have been

• environmental and geological conditions; and imprudently incurred can lead to disallowance of recovery for those

• unanticipated cost increases with respect to labor or materials, costs. The rates ultimately approved by the applicable regulatory including basic commodities needed for our infrastructure such body may not be sufficient for us to recover our costs and to provide as steel, copper and aluminum.

for an adequate return on and of capital investments.

-16

WESTAR ENERGY 1 2009 ANNUAL REPORT These and other factors, or any combination of them, could cause We are subject to complex governmental regulation that us to defer or limit our capital expenditure program and could could adversely affect our operations.

adversely impact our consolidated financial results. Our operations are subject to extensive regulation and require numerous permits, approvals and certificates from various govern-Capital market conditions can cause fluctuation in mental agencies. We must also comply with environmental legisla-the values of assets set aside for employee benefit tion and associated regulations. New laws or regulations, the revision obligations and the Wolf Creek nuclear decommissioning trust and may increase our funding requirements related or reinterpretation of existing laws or regulations, or penalties imposed to these obligations. for non-compliance with existing laws or regulations may require us to incur additional expenses.

We have significant future financial obligations with respect to employee benefit obligations and the Wolf Creek nuclear decom- Our costs of compliance with environmental laws missioning trust. The assets needed to meet those obligations are are significant, and the cost of compliance with subject to market fluctuations and will yield uncertain returns, future environmental laws could adversely affect which may fall below our expectations,. upon which we plan to our consolidated financial results.

meet our obligations. Additionally, changes in interest rates affect Our operations are subject to extensive federal, state and local the value of future liabilities. While the KCC has recently allowed us environmental statutes, rules and regulations relating to air quality, to implement a regulatory accounting mechanism to track certain water quality, waste management, natural resources, and health of our employee benefit plan expenses, this mechanism does not and safety. Compliance with these legal requirements requires allow us to make automatic price adjustments. Only in future rate us to -commit significant capital and operating resources toward proceedings may we be allowed to adjust our prices to reflect permitting, emission fees,, environmental monitoring, installation changes in our funding requirements for these benefit plans. and operation 6f pollution control equipment and purchases of air Further, the tracking mechanism for these benefit plan expenses is emission allowances and/or offsets.

part of our overall rate structure, and as such it is subject to KCC review and may be modified, limited or eliminated in the future. If We emit large amounts of CO 2 and other gasses through the these. assets are not managed successfully, our consolidated operation of our power. plants. Existing environmehtal law's and financial results could be adversely affected. regulations may be revised or new laws and 'regulations related to- GHGs may be adopted and may result in significant additional Adverse economic conditions could adversely impact our expense and operating restrictions on our generating facilities or operations and our consolidated financial results. increased compliance costs.

Our operations are affected by economic conditions, including the Costs. of compliance with environmental 'regulations, if not current recession. Adverse general economic conditionsincluding a recovered in the prices we are allowed to charge, could adversely prolonged recession or capital market disruptions may:, . affect our consolidated financial results, especially if emission

" reduce demand for our service; and/or discharge limits are tightened, more extensive permitting

" increase delinquencies or non-payment by customers; requirements are imposed, additional substances become regulated

" adversely impact the financial condition of suppliers, which may and the number and types of 'assets we operate increases. We in turn limit our access to inventory or capital equipment; cannot estimate our compliance costs with certainty due to our

" increase deductibles and premiums and result in more restrictive inability to predict the requirements and timing of implementation policy terms under insurance policies regarding risks we typically of any new environmental rule or regulation related to emissions.

insure against, or make insurance claims more difficult to collect;

" result in lower worldwide demand for coal, oil and natural gas, Our risk management policies cannot eliminate price which may decrease fossil fuel prices and put downward pressure volatility and counterparty credit risks associated with on electricity prices; and our energy marketing activities.

" reduce the credit available to our energy trading counterparties We engage in energy marketing transactions with the goal of and correspondingly reduce our energy trading activity or increase managing our commodity price risk, enhancing system reliability our exposure to-founterparty default. and increasing profits. We operate in active wholesale markets that expose us-to price volatility for electricity and fuel and other Any of these events, and others we may not be able to identify, commodities. The prices we use to value these transactions reflect could have an adverse impact on our consolidated financial results. our best estimates of the fair value of these contracts. Results actually achieved from these activities could vary materially from Deliveries of fuel for our plants may be interrupted or intended results and could cause significant earnings variability. In slowed, which may adversely impact our consolidated financial results. addition, we are exposed to credit risks of our counterparties and the risk that one or more counterparties may fail to perform their We purchase fuel, including coal, natural gas and uranium, fromn a obligations to make payments or deliveries. Defaults by suppliers number of suppliers. Disruption in the delivery of fuel or environ-or other. counterparties may adversely affect our consolidated mental regulations affecting any of our fuel suppliers could limit financial results.. ..  :

our ability to operate our facilities. In addition, the supply markets for coal, natural gas and uranium are subject to price fluctuations, We attempt to manage our exposure to price volatility and availability restrictions and counterparty default. It is not possible to counterparty credit risk through application of established risk predict the ultimate cost or availability of these commodities. Such limits and risk management procedures. These risk limits and risk costs, if not recovered in the priceswe are allowed to charge, could management procedures may not work as planned and cannot have a material adverse effect on our consolidated financial results. eliminate all risks associated with these activities.'

17-

WESTAR ENERGY I 2009 ANNUAL REPORT We are exposed to various risks associated with the . Equipment failures and other events beyond our control ownership and operation of Wolf Creek;,any of which may cause extended or unplanned plant outages, which could adversely impact our consolidated financial results. may adversely impact our consolidated financial results. -

Through KGE's ownership of an interest in Wolf Creek, we are The generation and transmission of electricity requires the use of subject to the risks of nuclear generation, which include: expensive andcomplicated equipment, much of which is aged, abid

" the risks associated with storing, handling and disposing of all of which requires significant ongoing maintenance. Although radioactive materials and the current lack of a long-term disposal we have a mar.it-enance program in place, our power plants and solution for radioactive materials; equipment are subject to extended or unplanned outages because

" limitations on the amounts and types of insurance commercially of equipment failure, weather, transmission system disruption, available to cover losses that might arise in connection with operator error, contractor or subcontractor failure and other factors nuclear operations; . ... ai largely beyond our control. In such events, we must either produce

• uncertainties withlo.respect to the technological and* financial replacement power for our other units, which may be less efficient aspects of decommissioning Wolf Creek at the end of its life&and or more expensive to operate, or purchase power from others at

" costs of measures associated with public safety. 'unpredictable and potentially higher costs in order tc meet our sales obligations. Such events Could also limit our ability to make sales The NRC has authority to impose licensing and safety-related to customers. Therefore, the occurrence of extended or unplanned requirements for the operation of nuclear generation- facilities. In outages could adversely affect our consolidated financial results.

the event of non-compliance, the NRC has authority to impose fines or shut down a unit, or both,,depending upon its assessment ITEM lB. UNRESOLVED STAFF COMMENTS of the. severity of -the situation, until compliance -is achieved.

Revised safety requirements enacted by the NRC could necessitate None.

substantial capital expenditures at Wolf Creek. In addition, the Institute of Nuclear Power Operations (INPO) reviews Wolf Creek ITEM 2. PROPERTIES operations and facilities. Compliance with INPO recommendations

' Unit Capacity (MW) ByOwner could result in substantial capit'al 'xpenditures or a substantial increase in operating ex"penses at Wolf Creek being passed through Unit Year Principal Westar Total Name/Location No. Installed Fuel Energy KGE Company to KGE.

Abilene Energy Center:

If an incident did occur at Wolf Creek, it could. have a material Abilene, Kansas - " ,

adverse effect on our consolidated financial results. Furthermore, Combustion Turbine 1 1973 Gas 64 - 64 the non-compiiance :of other nuclear facilities operators with Central Plains Wind Farm applicable regulations or the'occurrence of a serious nuclear Wichita County, Kansas .) 2009 Wind - - -

incident at other facilities could result in'increased regulation of Emporia Energy Center:

the industry as a whole, which could in turn increase Wolf Creek's Emporia, Kansas Combustion Turbine 1 '2008 Gas 45 - 45 compliance costs and impact our consolidated financial results. .2- 2008 Gas 45 - 45 In addition, in the event of an extended or unscheduled outage 'at 2008 Gas 47 - 47 S-,. 4 2008 Gas 46 - 46 Wolf Creek, we would be required to generate power fromr nore

5. 2008 Gas 161 - 161 costly generating units; purchase power in the -open market to 6 2009 Gas 159 - 159 replace the. power normally produced at Wolf Creek and have less 7 2009 Gas 160 - 160 power available for sale into the wholesale markets. If we.were Flat Ridge Wind Farm unable to recover these cdsts fromn customers, such events would Barber County, Kansas < 2009 Wind - - -

likely have an adverse impact 6n 6ur consolidated financial results.- Gordon Evans Energy Center:

• Colwich, Kansas -' *  ?

Events could occur that would change the accounting Steam Turbines ' 11 1961 Gas-Oil -- 153 153 principles-for regulated utilities currently applicable to 2 1967, Gas-Oil -- 384 384 our business, which would have an adverse impact on Combustion Turbines 1 2000 Gas 74 - 74 our consolidated financial results. ,. 2-2. 2000 Gas .71 71 3 2001 - Gas- .150 . - 150 We currently apply accounting principles that are unique to Diesel Generator 1 1969 Diesel - 3 3 regulated entities. As of December 31, 2009, we had recorded Hutchinson Energy Center:

H

$715.0 million of regulatory assets, net of regulatory liabilities. In the Hutchinson, Kansas . .

event we determined that we could no longer apply these principles, Steam Turbine 4 1965 Gas- Oil 162 . , . - 162 either as: (i) a result of the establishment of retail competition in our Combustion Turbines 1 1974 Gas . - 56 - 56 service territory; (ii) a change in the regulatory approach for setting - '

-- 2 1974 Gas 56 - 56 rates from cost-based ratemaking to another form of ratemaking; 3 1974 Gas 56 - 56 (iii) a result of other regulatory actions that restrict cost recovery to 4 1975 Diesel , 62-.. -- 62

- Diesel Generator 1, 1983 Diesel 3 -- 3 a level insufficient to recover costs; or (iv) a change from current Jeffrey Energy Center (92%):

generally accepted accounting principles (GAAP) to another set of St. Marys, Kansas * -

standards that does not recognize regulatory assets or liabilities, we Steam Turbines 1 (h) 1978, Coal 521 144. 665 would be required to record a charge against income in the amount 2 (b) 1980 Coal - 522 145 667 of the remaining unamortized net regulatory assets. Such an actioh S ' . 3(h) 1983 - Coal - .516 143 659

.would materially reduce our shareholders' equity. We review these LaCygne Station (50%):

criteria to ensure that the continuing application of these principles LaCygne, Kansas Steam Turbines 1 (b) 1973 Coal - 368 368 is appropriate each reporting period. Based upon our most current 2(c 1977 Coal - 341 341 evaluation of the various factors that are expected to impact future cost recovery, we believe that our regulatory assets are probable of recovery.

-18

WESTAR ENERGY,.I 2009 ANNUAL REPORT Unit Capacity (MW) ByOwner PART II Unit Year Principal Westar Total ITEM 5. MARKET FOR REGISTRANT'S'COMMON EQUITY Name/Location No. Installed Fuel Energy KGE Company AND RELATED STOCKHOLDER MATTERS Lawrence Energy Center:

Lawrence, Kansas STOCK PERFORMANCE GRAPH Steam Turbines 3 1954 Coal 50 - 50 The following graph compares the performance of Westar Energy's 4 1960 Coal 108 - 108 common stock during the period that began on December 31,2004, 5 1971 Coal 371 - 371 and ended on December 31, 2009, to the Standard & Poor's 500 Murray Gill Energy Center:

Wichita, Kansas Index and the Standard & Poor's Electric Utility Index. The graph Steam Turbines 1 1952 Gas - 40 40 assumes a $100 investment in Westar Energy's common stock 2 1954 Gas - Oil - 56 56 and in each of the indices at the beginning of the period and a 3 1956 Gas-Oil - 102 102 reinvestment of dividends paid on such investments throughout 4 1959 Gas-Oil - 95 95 the period.

Neosho Energy Center:

Parsons, Kansas CUMULATIVE TOTAL RETURN Steam Turbine 3 1954 Gas - Oil - 67 67 Based upon an initial investment of $100 on December 31, 2004 Spring Creek Energy Center: with dividends reinvested Edmond, Oklahoma $200 Combustion Turbines 1 (d1) 2001 Gas 72 - 72 2 (0) 2001 Gas 70 - 70 3(d) 2001 Gas 67 - 67 $150 0,

' 00 4 (d) 2001 Gas 69 - 69 1%1 State Line (40%): $100' Joplin, Missouri . SSO Combined Cycle 2-1 (b 2001 Gas 64 - 64 - $5 2-2(l) 2001 Gas 65 - 65 2-3(b) 2001 Gas 70 - 70 Tecumseh Energy Center:

Tecumseh, Kansas Steam Turbines 7 1957 Coal 73 - 73 8 1962 Coal 129 - 129 $0 Combustion Turbines 1 1972 Gas 18 - 18 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 2 1972 Gas 19 - 19 Wolf Creek Generating Station (47%): Westar Energy Inc.

Burlington, Kansas

. . -. S&PO Electric Utilities Nuclear 1 M) 1985 Uranium - 545 545

- - - - S&PO 500 ,

Total 4,221 2,586 6,807

( Westar Energy owns CentralPlains Wind Farm,which has nameplatecapacity of Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 99MW. Westar Energy owns 50% and purchases the other 50% of the generation Westar Energy lnc ..... $100 ,'$

98 " $'123 $128 $107 $121 from Flat Ridge Wind Farm pursuant t6 a purchase power agreement with BP Standard&Poor's 500.. $100 $105 $121' $128 $81 $102 Standard & Poor's Alternative Energy North. In total, it has nameplate capacity ofl O0MW Electric Utilities . $100 $118 $145 $179 $133 ' $137 (b;We jointly own La Cygne unit I generatingunit (50%), Wolf Creek Generating Station (47%) and State Line (40%); and jointly own and lease Jeffrey Energy Center (92%). Unit capacity amounts reflect our ownership' and leased STOCK TRADING percentages only.

(c)In 1987, KGE entered into a sale-leaseback transaction involving its 50% Westar Eneigy's common'stock is listed on the New York interest in the La Cygne unit 2 generatingunit. Stock Exchange and traded' under the ticker symbol WR.'As of (d)We acquired Spring Creek Energy Center in 2006.

Februar) 17, 2010, there were 23,111 common shareholders of record. For information regarding quarterly common stock price We own and have in service approximately.'6,200 miles of trans- ranges for 2009 and 2008, see Note 19 of the Notes to Consolidated mission lines, approximately 23,800 miles of overhead distribution Financial Statements,"Quarterly Results (Unaudited)."

lines and approximately 4,200 miles of underground distribution lines.

Substantially all of our utility properties are encumbered by first DIVIDENDS, priority mortgages pursuant to which bonds have been issued and Holders of W6stair Energy's preferred and common stocks are are outstanding. entitled" to 'dividends when and as declared by Westar Energy's board of directors.,

ITEM 3. LEGAL PROCEEDINGS Quarterly dividends on common and preferred stock have Information on other legal proceedings is' set forth in Notes 3, 13 historically been paid on. or about the first business day of January, and 15 of the Notes to Consolidated Financial Statements, "Rate April, July and October to shareholders of record as of or about Matters and Regulation;" "Commitments and Contingencies - the ninth day of the preceding month. Westar Energy's board of EPA Lawsuit - FERC Investigation" and "Legal Proceedings;" directors reviews the common stock dividend policy from time respectively, which are incorporated hefein by reference. to time. Among the factors the board of directors considers in determining Westar Energy's dividend policy are earnings, cash ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF, flows, capitalization ratios, regulation, competition and financial SECURITY HOLDERS loan covenants. During 2009 Westar Energy's board of directors declared four quarterly dividends of $0.30 per.share, reflecting an None. annual dividend of $1.20 per share. On February 24, 2010, Westar 19I

WESTAR ENERGY I 2009 ANNUAL REPORT Energy's board of directors declared a quarterly dividend of $0.31 certain capitalization ratios and other conditions. Westar Energy per share payable to shareholders on April 1, 2010. The indicated was not limited by any such restrictions during 2009. Further annual dividend rate is $1.24 per share. information on these restrictions is included in Note 16 of the Notes to Consolidated Financial Statements, "Common and .Preferred Westar Energy's articles of incorporation restrict the payment of Stock!' Westar Energy does not expect these restrictions to have an dividends or the making of other distributions on its common stock impact on its ability to pay dividends on its common stock.

while any preferred shares remain outstanding unless it rheets ITEM 6. SELECTED FINANCIAL DATA Year Ended December 31, 2009 2008 2007 2006 2005 (InThousands)

Income Statement Data:

Total revenues . ................... $ t.............................

1,858,231 $ 1,838,996 $ 1,726,834 $ 1,605,743 $ 1,583,278 Income from continuing operations .................................... 141,330 178,140 168,354 165,309 134,868 Net income attributable to common stock . 174,105 177,170 167,384 164,339 134,640 As of December 31, ."2009 2008 2007 2006 2005 (InThousands)

Balance Sheet Data:

Total assets. ............................................. $ 7,525,483 $ 7,443,259 $ 6,395,430 $ 5,455,175 $ 5,210,069 Long-term obligations and mandatorily redeemable preferred stock00 2,610,315 2,465,968 2,022,493 1,580,108 1,681,301 Year Ended December 31, . 2009 2008 2007 2006 2005 Common Stock Data:

Basic earnings per share available for common stock from continuing OperationsM ..................................................... $ 1.28 $ 1.69 $ 1.83 $ 1.86 $ 1.52 Basic earnings per share available for common stocky) ...................... $ 1.58 $ 1.69 $ 1.83 $ 1.86 $ 1.53 Dividends declared per share ......................................... $ 1.20 $ 1.16 $ 1.08 $ 1.00 $ 0.92 Book value per share ............................................... $ 20.59 $ 20.18 $ 19.14 $ 17.61 $ 16.31 1 . .. . ... . .. ..

Average equivalent common shares outstanding (in thousands) It 109,648 103,958 90,676 87,510 86,855 1

' Includes long-term debt and capital leases.

Earningsper share (EPS) amounts for 2005 through2008 were adjusted to reflect the use of the two-class method. See Note 2 of the Notes to ConsolidatedFinancial Statements,"Summary of Significant Accounting Policies - Earningsper Share,"for additional information regardingthe two-class method.

(c)In 2007 Westar Energy issued and sold approximately.8.1 million shares of common stock realizing net proceeds of $195.4 million.

(*aIn 2008, Westar Energy issued and sold approximately 12.8 million shares of common stock realizingnet proceeds of $293.6 million.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF m Performance of our electric generating facilities and networks; FINANCIAL CONDITION AND RESULTS OF OPERATIONS n Conditions in the fuel, wholesale electricity and energy markets; Certain matters discussed in Management's Discussion and mRate regulation and costs of addressing public policy initiatives; Analysis are "forward-looking statements." The Private Secuirities s The availability of and our access to liquidity and capital resources; Litigation Reform Act of 1995 has established that these staterrients and qualify for safe harbors from liability. Forward-looking staterrients

• Capital market conditions.

may include words like we"believe," "anticipate," "target," "exfpect," Strategy "pro forma," "estimate," "intend" and words of similar meatning. Our strategy is to remain a vertically integrated electric utility Forward-looking statements describe our future plans, objectrives, meetingthe energy needs, of our customers reliably at reasonable expectations or goals.

prices. We strive to optimize flexibility in our planning and operations to be able- to respond quickly to the uncertain and EXECUTIVE

SUMMARY

changing energy and environmental policies, economic conditions, regulations and technologies currently affecting or related to our Overview business. Working constructively with our regulators and public We are the largest electric utility in Kansas. We produce; tran.smit officials is an important part of our strategy.

and sell electricity at retail to approximately 685,000 custome rs in Kansas under the regulation of the KCC. We also provide elk!ctric Significant elements of our strategyinclude environmental upgrades energy at wholesale to the electric distribution systems of 31. cities to our coal-fired power plants, the ability to use more natural gas-and four electric cooperatives in Kansas under the regulaticin of 'fired generation, the development of wind generation and the FERC. We have other contracts for the sale, purchase or exchanýge of building and upgrading of transmission facilities. We also plan to wholesale electricity with other utilities. In addition, we engalge in invest significant resources to enhance our distribution system and energy marketing and purchase and sell electricity in areas ou tside to develop energy efficiency programs. Following is a summary of of our retail service territory. some of the progress we have made on these significant elements.

w During 2009, we made capital expenditures of $85.2 million at Key Factors Affecting Our Performance our power plants for air emission controls.

The principal business, economic and other factors that affecl our mWe completed construction of the Emporia Energy Center, a operations and financial performance include: natural gds-:fired peaking power plant comprising approximately

" Weather conditions; 660 MW of capacity, in early 2009 for a total investment of

" Customer conservation efforts; $304.5 million.

- 20 m The economy;

WESTAR ENERGY 1 2009 ANNUAL REPORT

" Along with third parties, we developed approximately 300 MW " The downturn in the global and U.S. economhy continued of wind generation, facilities at three different sites in Kansas, to impact our business throughout 2009. See "- Economic approximately half of which we own and half of which we Conditions"below for additional information; purchase under long-term supply contracts. These wind genera- " We received regulatory approval to increase our retail prices. For tion facilities began producing energy in late 2008 and early 2009. additional information, see"- Changes in Prices" below as well

" We continued constructing a 345 kV transmission line in central as Note 3 of the Notes to Consolidated Financial Statements, Kansas. "Rate Matters and Regulation;"

" We are actively engaged in numerous programs to e6iable and " We reached a settlement with the IRS for years 2003 and 2004 educate customers to use energy more efficiently. associated with the re-characterization of a portion of the loss we incurred on the sale of Protection One from a capital loss to Our plani and expectations for 2010 and beyond include: an ordinary loss. This settlement resulted in a 2009 net earnings

• The potential to invest an additional $946.0 million of capital benefit from discontinued operations of $33.7 million, or,$0.30 expenditures at our power plants for air emissions projects over per share, net of $22.8 million we paid Protection One; the next three years. " We made capital expenditures of $555.6 million during 2009. See In January 2010, we reached an agreement with a third party-to "- Increased Capacity and Future Plans" and"7- Liquidity and acquire the development rights for a site we believe is capable Capital Resources" below for additional information;.

of supporting up to 500 MW of wind generation. We expect " KGE issued $300.0 million principal amount of first mortgage

-to develop the site in phases with the initial phase potentially bonds- as part of our efforts to raise the funds needed for our completed by the end of 2012, subject to regulatory approvals capital projects. We also repaid $145.1 million principal amount and the pace of development of new transmission facilities in of unsecured senior notes. We expect to continue to issue equity western Kansas. and debt securities as external funds are needed to complete

• We expect to complete in 2010 the 345 kV transmission line we planned capital expenditures.

are constructing in central Kan'sas. " On January 25, 2010, we announced a settlement with :the DOJ

• In 2010, we expect to begin planning and engineering a 345 kV of a pending lawsuit over allegatiorns regarding environmental air transmission line that will run from a location near Wichita, regulations. The settlement provides for us to install additional air Kansas, south to the Kansas-Oklahoma border. emission control equip'ment'at Jeffrey Energy Center. We have not

• Upon approval from the SPP Board of Directors and appropriate yet engineered this project; however, our preliminary estimate regional cost allocation, Prairie Wind Transmission, LLC, a joint of the project cost is approximately $200.0 million. We will also venture company of which we own 50%, intends to construct invest $5.0 million over six years in environmental mitigation a new substation near Wichita, Kansas, and one near Medicine projects which we will own, invest $1.0 million in environmental Lodge, Kansas, as well as a transmission line connecting the two mitigation projects that will be owned by a qualifying third substations. Prairie Wind also plans to construct a transmission party and pay a $3.0 million civil penalty. Accordingly, we have line south to the Kansas-Oklahoma border from one of the recorded a $4.0 million liability pursuant to the terms of the two substations. settlemenit. See Note 13 of the Notes to Consolidated Financial

• We expect to continue improving our distribution system through Statements,"Commitments and Contingencies - EPA Lawsuit,"

enhanced vegetation management as well as equipment and for additional information.

process improvements.

• We expect tocontinue developing programs to better educate our Decrease in Net Income customers about the efficient use of energy. One project we expect Net income decreased $31 million in 2009'compared to 2008 due to undertake.beginning in 2010 is SmartStar Lawrence,-a smart primarily to lower sales; lower average wholesale prices and higher grid project based in Lawrence, Kansas. Under this project, we income tax expense offset largely by price increases authorized will install Advanced Metering Infrastructure meters and other by the KCC. Retail sales were 4% lower due principally to cooler equipment to give customers the ability to better monitor their weather and the effects of recessionary conditions particularly energy use. We applied for and1 have been selected by the DOE impacting our industrial sales. In 2008, we recognized $28.7 million to negotiate a matching grant of approximately $19.0 million. We of previously unrecbgnfized tax benefits associated with uncertain expect the total project cost to approximate $39.3 million: income tax liabilities and $14.6 million in state tax .incentives related' to investment' and jobs creation in Kansas. We did not Summary of Significant Items recognize similar income tax benefits in continuing operations in Overview 2009 resulting in higher income tax expense.

Several significant items have impacted or may impact us and our Economic Conditions .

operations since January 1, 2009:, Despite improvements in the capital markets and increases in

" We reported net income of $175.1 million and basic EPS of $1.58 asset valuations, many.aspects of the downturn in the global and for the year ended December 31, 2009, compared to net income U.S. eco.nomy continued to impact our business throughout 2009.

of $178.1 million and basic EPS of $1.69 for the year ended Most notably, many of our industrial customers continued to December 31, 2008. See "- Decrease in Net Income" below for experience reduced production. This resulted in decreased demand an explanation of the decrease in net income; for electricity from' these customers as evidenced by the 10.8%

" The weather in our service territory during the third quarter of decrease in industrial sales from 2008 to 2009. Additionally, the 2009 was the coolest in over 40 years. As measured by cooling Kansas unemployment rate increased from 5.0% in December 2008 degree days, the weather during this period was 14% cooler than to 7.5% in July 2009 before declining to 6.6% in December 2009. We the same period in 2008 and 27% cooler than the 20-year average. cannot predict when these economic conditions may improve or to The cooler weather during this period was a key contributor to what extent they may continue.to affect electricity sales, including the decrease in residential and commercial sales in 2009; effects that may spill over into residential and commercial sales, and the affect this might have on our consolidated financial results.

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WESTAR ENERGY I 2009 ANNUAL REPORT Changes in Prices On April 17, 2009, the Administrator of the EPA issued a proposed On May 29,2009, the KCC issued an order allowing us to adjust our finding that GHG emissions from. mobile sources cause or prices to include costs associated with environmental investments contribute to air pollution that endangers the public health and made in 2008. This change went into effect on June 1, 2009, and is welfare. The endangerment finding was proposed in response to a expected'to increase our annual retail revenues by $32.5 million. U.S. Supreme Court's ruling in April 2007 that GHGs are pollutants as defined in the CleanAir Act. If the EPA proposal becomes final, the On March 6, 2009, the KCC issued an order allowing us to adjust EPA will be required to enact GHG emission standards for mobile our prices to include updated transmission costs. This change sources. On September 15, 2009, the EPA and the U.S. Department went into effect on March 13, 2009, and is expected to increase our of Transportation released a~proposed joint rule that would regulate annual retail revenues by $31.8 million. GHG emissions from passenger cars and light trucks. If the rule becomes final, it may render GHG,s including CO 2, "subject to On January 21, 2009, the KCC issued an order expected to increase regulation" under the Clean Air Act. On September 22, 2009; the our annual retail pricts by $130.0 million to reflect investments in EPA released its final rule requiring mandatory reporting of GHG natural gas generation facilities, wind generation facilities and other emissions from all economic sectors. Our generating facilities capital projects, costs to repair damage to our electrical system, which are subject to these new reporting requirements. In addition, on were previously deferred as a regulatory asset, higher operating September 30, 2009, the EPA issued a proposed rule under the costs in general and an updated capital structure. The new prices Clean Air Act and indicated its expectation that it would enact became effective on February 3, 2009.

regulations to control GHGemissions.

Current Trends, There is substantial, ..uncertainty with respect to whether U.S.

Energy Marketing federal GHG legislation will be enacted into law or whether Conditions in the wholesale energy markets haw6 made' it more the EPA will, regulate GHG emissions, and there is additional difficult for us to produce energy marketing margins at historical uncertainty regarding the final provisions and implementation of levels. We expect these conditions to persist. As a result, weý antici- any potential U.S. federal GHG legislation or EPA rules 'regulating pate future energy marketing Margins below historical levels. GHG emissions. We cannot predict with certainty the outcome of Wholesale power market conditions.include: low electricity prices the legislative and rulemaking processes or a specific related impact relative to historical lVels, lower natural gas prices, reduced demand on our generating facilities and consolidated financial results.

for electricity in general and, dcle to an increase in the number.of Allowance for Funds Used During Construction parties transacting through exchanges and power pools, fewer customers willing to enter into bilateral wholesale energy contracts. Allowance for funds used during construction (AFUDC) represents the cost of capital used to finance utility construction activity.

Environmental Regulation We compute AFUDC by applying a composite rate to qualified Environmental laws and regulations affecting power plants, which construction work in progress. We credit to other income (for equity relate primarily to discharges into the air, air quality, discharges of funds) and interest expense (for borrowed funds) the amount of effluents into water, the use of water, and the handling, disposal and AFUDC capitalized as construction cost on the accompanying clean-up of hazardous and non-hazardous substances and Wastes, consolidated statements of income as follows:

continue to evolve and have tended to become mcire stringent over Year Ended December 31, 2009 2008 2007 time. We have incurred and will continue to incur significant capital (InThousands) and other expenditures to comply with environmental .l.ws and Borrowed funds ........................ $ 4,857 $ 20,536 $ 13,090 regulations. While certain of these costs are recoverable through Equity fundsý ................ I. .... . I,. 5,031 18,284 4,346 the ECRR, we cannot assure that all such costs will be recoverable in full and in a timely manner from customers. Total ................................ $ 9,888 $ 38,820 $ 17,436 Average AFUDC Rates ................... 4.2% 6.4% 6.6%

Potential for'Greenhouse Gas Regulation For the past several years, there has been ongoing debate regarding We expect both AFUDC for boriowed funds and equity funds how the release of GHGs maiy affect the climate. There is pending to fluctuate over the next several years as we execute our capital legislation regarding the regulation of such gases and there have expenditure program.

been court decisions affirming concerns about them.

Interest Expense On June 26, 2009, the U.S. House of Representatives passed a bill We expect interest expense to increase over the next several years which, if passed by the Senate and signed into law,by the President, as we issue new debt.securities to fund our capital expenditure would require reductions in GHG emissions and, evefi beyond that, program. We believe this increase will be reflected in the prices would impose additional expense for virtually all such 'emissions, we, are permitted to charge customers, as the cost of capital is a even those below the stated targeted emission levels. The bill component of future rate proceedings. In addition, short-term identifies seven gasses, including CO 2, as GHGs, and introduces interest rates are extremely low by historical standards, which we a target to reduce GHG emissions 3% below 2005 levels by 2012, do not expect to persist.

17% below 2005 levels by 2020,42% below 2005 levels by 2030 and 83% below 2005 levels by 2050. The bill also mandates that retail Wholesale Sales Margins electric utilities receive 6% of their power from renewable source's As a result of the january'21, 2009, KCC order, the amount to be by 2012, with this requirement increasing to 20% by 2020; in certain credited back to retail customers, beginning in March 2009, is circumstances, a portion of this requirement could be satisfied based on the actual margins realized from market-based wholesale through energy efficiency meas'uires. On September 30, 2009, sales. Prior to March 2009, the terms of the RECA required that we similar legislation'was introduced in the U.S. Senate. The targets for include, as a credit to recoverable fuel costs beginning in April of GHG emission reductions under the Senate bill are 3% below 2005 each year, an amount based on the average of the margins realized levels by 2012, 20% below 2005 levels by 2020, 42% below' 2005 from market-based wholesale sales during the immediately prior levels by 2030 and 83% below 2005 levels by 2050. three-year period ending June 30.

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WESTAR ENERGY I 2009 ANNUAL REPORT 2010 Outlook Pension and Other Post-retirement Benefit Plans-In 2010, we expect to maintain our current business strategy arid Actuarial Assumptions regulatory approach. In addition to the price increase. authorized We and Wolf Creek calculate our pension benefit and post-retirement as a result of our abbreviated rate case, we anticipate other price medical benefit obligations and related costs using actuarial increases in the form of rate formulae adjustments to take effect in concepts within the guidance provided by applicable GAAP.

2010. We also expect a return to normal weather, which we expect to result in residential and commercial sales trends more in line In accounting for our retirement plans and other post-retirement with historical levels. We expect industrial sales to remain ,below benefits, we make assumptions regarding the valuation of benefit the levels experienced previous to the. economic downturn and obligations and the performance of plarn assets. The reported, costs to be not much different than in 2009. As mentioned: above, we of our pension plans are impacted by estimates regarding earnings anticipate future energy marketing margins below historical levels on plan assets, contributions to the plan, discount rates used to due to changes in wholesale energy market conditions that we determine our projected benefit obligation and pension costs and believe will persist. We expect operating and maintenance as well employee demographics-including:age, compensation levels and as selling, general and administrative expenses to trend in line with employment periods. Changes in these assumptions will result in historic labor increases and irflitiori rates. We expect depreciation changes to regulatory assets, regulatory liabilities or the amount of expense to increase in 2010 as a result of plant additions during related pension and other post-retirement liabilities -reflected on the year. Furthermore, we expect to contribute $37.7-'million to our consolidated balance sheets. Such changes may also require our pension and post-retirement benefit plans and Wolf Creek's cash contributions. ' '

pension plan in 2010. We plan to increase capital spending in The following table shows the impact of a 0.5% change in our pension 2010 as provided under "- Future Cash, Requirements" below. plan discount rate, salary scale'and rate of return on plan,assets.

As a result, in January and February 2010, Westar Energy issued 1.2 million shares of common stock for proceeds of $25.0 million Annual

• Change in . Change in through a Sales Agency Financing Agreement with a bank.. Westar Projected Change in Projected Energy may issue additional shares ofcommon stock in 2010. Actuarial Assumption Changein Assumption Benefit Pension Pension Obligation(o) Liability4laExpense(a.

(InThousands)

CRITICAL ACCOUNTING ESTIMATES Discount rate ............... 0.5% decrease $j52,594 $52,594 $5,304 00.5% increase (49,220) (49,220) ' (5,171)

Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, Salary scale ................ 0.5% decrease (14,530) (14,350) (2,895).

which have been prepared in conformity with GAA. Note 2 0.5% increase 14,643 14,643 2,982 of the Notes to Consolidated Financial Statements, "Summary Rate of return on plan assets... 0.5% decrease - ' 2,717 of Significant Accounting Policies," contains a summary of our 0.5% increase - (2,717) significant accounting policies, many of which require the use ' Increases or decreases due to changes in actuarialassumptions result in changes of estimates and assumptions by management. The policies to regulatoryassets and liabilities..'.

highlighted below have an impact on our reported results that may be material due to the levels of judgment and subjectivity necessary The following table shows the impact of a' 0.5% change in the to account for uncertain matters or their susceptibility to-change. discount rate and rate of return on' plan assets on our post-Regulatory Accounting retirement benefit plans other than pension plans. I We currently apply accounting staindards that recognize the Annual Change in economic effects of rate regulation. Accordingly, We" have recorded Change in Changein Projected regulatory assets and liabilities when required by a regulatory order Projected Post- Post-Change in Benefit retirement retirement or based on regulatory precedent. Regulatory assets represent Actuarial Assumption Assumption Obligation(4) Liabi!ityla) Expense(a) incurred costs that.. have been deferred, because, they are. probable S'

' (InThousands) of future recovery in our price's. Regulatory liabilities represent Discount rate. . . ...... 0.5% decrease $6,952 $6,952. $363 probable future reductions in revenue or refunds to customers. 0.5%'increase (6,615) .. (6,615) (375)

The deferral of' 'costs' as regulatory 'assets is appropriate only Rate of return on plan assets ... 0.5% decrease - ,- 312 when the future reccvery' of such costs is' probable. In assessing 0.5% increase - -- (312) probability, we consider such factors as specific regulatory orders;

• Increases or decreases due to changes in actuarialassumptions result in changes regulatory precedent and the current regulatory environment. Were to reg'ulatoryassets and liabilities.',

we to deem it improbable that we would recover such costs, we would record a charge against income in the amount of the related Revenue Recognition - Energy Sales regulatory assets.

We record revenue at the time we deliver electricity to customers. We As of December 31, '2009, we 'ha'd recorded regulatory assets determine the amounts delivered to individual customers through currently subject to recovery in future prices. of approximately systematic monthly readings of customer meters. At the end of each

$855.8 million and .regulatory liabilities of $140.7 million, as month, we estimate how much electricity we have delivered since the discussed in greater detailihi Note 2'0f the'Notes to Consolidated prior meter reading and record the corresponding unbilled revenue.

Financial Staterfients,"Suh-nmary of Significant Accointing Polici6s

- Regulatory Accounting." We believe that it is probable that otdr regulatory assets will be recovered in the future:

23-

WESTAR ENERGY 1 2009 ANNUAL REPORT The accuracy of our unbilled revenue estimate is affected by factors Income Taxes including fluctuations in energy demand, weather, line losses ,and We use. the asset and liability method of accounting for income changes in the composition of customer classes. We had estimated taxes. Under this method, we recognize deferred tax assets and unbilled revenue of $56.6 million as of December 31, 2009, and liabilities for the future tax consequences attributable to temporary

$47.7 million as of December 31; 2008. The increase in unbilled differences between the financial statement carrying amounts and revenue reflects price increases as discussed in Note 3 of the Notes the tax basis' of existing assets and liabilities. We recognize the to Consolidated Financial Statements;"Rafe Matters and Regulation." future tax benefits to the extent that realization of such benefits is We account for energy. marketing derivative contracts under the more likely than' not. We amortize deferred investment tax credits fair value method. of accounting. Under this method, we recognize over the lives of the related properties as required by tax laws and changes in the portfolio value as gains or losses in the period of regulatory practices. We recognize production tax credits in the year change. With the exception of certain fuel supply and electricity that electricity is generated to the extent that realization of such sale contracts, which we record.,as regulatory assets or regulatory benefits is more likely than not.

liabilities, we include the net change in fair value in revenues on We record deferred tax assets for carryforwards of capital losses, our consolidated statements of income. We record the resulting operating losses and tax credits. However, when we believe based unrealized gains, and losses as energy marketing long-term or on available evidence that we do not, or will not have sufficient short-term assets and liabilities on our consolidated balance sheets future capital gain income or taxable income in the appropriate as appropriate. We use quoted market prices to value, our energy taxing jurisdiction to realize the entire benefit during the applicable marketing derivative contracts when such data are available, .When carryforward period, we record a valuation allowance against the market prices are not readily available or determinable, we us& deferred tax asset. We report the effect of a change in the valuation alternative approaches, such as model pricing. The prices we use allqwance in the current period tax expense; to value these transactions reflect our best estimate of thi fair value of these contracts. Results actually achieved from these activities The application of income tax law is complex. Laws and regulations could vary materially from intended, results and could affect our in this area are voluminous and often ambiguous. Accordingly, consolidated financial results. we must make judgments regarding income tax exposures.

Interpretations of and guidance surrounding income tax laws The tables below show the fair value of energy marketing contracts and regulations change over time. As a: result, changes in our that were outstanding 'as of December 31, 2009, their sources and judgments can materially affect amounts we recognize in our maturity periods. consolidated financial statements. See Note 10 of the Notes to Consolidated Financial Statements, "Taxes,"for additional detail on our accounting for income taxes.

(InThousands)

Net fair value of contracts outstanding as of December 31, 20085a) ....... $ 50,364 Asset Retirement Obligations Contractsoutstanding at the-beginning of the period Legal Liability that were realized or otherwise settled during the period .............. (26,523) We have recognized legal obligations associated with the disposal Changes in fair value of contracts outstanding at the of long-lived assets that result from the acquisition, construction, beginning and end of the,period . ;.....: ....... ,.............:...:.. . (18,795)

Fair value of new contracts entered into during the period .............. (605) development or, normal operation of such, assets. Concurrent with the recognition of the liability, the estimated cost of the asset Net fair value of contracts outstanding as of December 31, 2 00 90b*........ $ 4,441 retirement obligation (ARO) is capitalized and depreciated over the

,a)Approximately$36.3 million of the fair value of energy marketing contracts remaining life of the asset. We estimate our AROs based on the fair was recognized as a regulatory liability. value of the AROs. we incurred at the time the related long-lived (b)Approximately $7.6 million and $6.0 million of the fair value of energy assets were either acquired, placed in service or when regulations marketing contracts were, recognized as a regulatory asset and regulatory establishing the obligation became effective.

liability,respectively. .-

We initially recorded AROs at fair value for the estimated cost to The sources of the fair values of the financial instruments related decommission Wolf Creek (our 47% share)', dispose of asbestos to these contracts as of December 31, 2009, are summarized in the insulating material at our power plants, remediate ash disposal following table. ponds and dispose of polychlorinated biphenyl contaminated oil. In determining our AROs,. we make assumptions regarding probable Fair Value of Contracts at End of Period future disposal costs. A-change in these assumptions could have Maturity . Maturity a significant impact onthe AROs reflected on our consolidated Total Less Than Maturity Maturity Over Sources of Fair Value Fair Value 1 Year 1-3 Years 4-5 Years 5 Years balance sheets.

(InThousands)

As of December 31, 2009 and 2008, we have recorded AROs Prices actively quoted of $119.5 million and $95.1 million, respectively. For additional (futures) ........ $ (1,654) $ (1,654) $' - $ - $ -

information on our.legal AROs, see Note 14 of the.Notes to Prices provided by'other Consolidated Financial Statements,.Asset Retirement Obligations."

external sources (swaps and forwards) ........ 5;797 (4,967) 6,684 4,080 -

Non-Legal.Liability - Cost of.Removal Prices based on option.

pricing models (options We recover in our prices the, costs to dispose of planf assets that do and other)(,) ......... 298 619 (242) (79) - not represent legal retirement obligations. As of December 31, 2009 afnd 2008, we had $68.1 million and $50.1 million, respectively, in Total fair value of contracts outstanding ......... $ 4,441 $(6,002) $ 6,442 $ 4,001 $ amounts collected, but not yet spent, for iremoval costs classified as a regulatory liability. The net amount related to non-legal (aOptions are priced using a series of techniques, such as the Black option pricing retirement costs can fluctuate based on amounts recovered in our model. prices compared to removal costs incurred.

-- 24

WESTAR ENERGY I12009 ANNUAL REPORT Contingencies and Litigation 2009 Compared to 2008 We are currently involved in certain legal proceedings and have Below 'we discuss our operating results for the year ended estimated the probable cost for the resolution of these claims. These December 31, 2009, compared to the results.for the year ended estimates are based on an analysis of potential results, assuming Ddcember 31, 2008. Significant changes, in results of. operations a combination of litigation and settlement strategies. It is possible shown in the table immediately below are further explained in the that our future results could be materially affected by changes in descriptions that follow..

our assumptions. See Note 13 and 15 of the Notes to Consolidated Year Endled December 31, 20 09. 2008 Change  % Change Financial Statements, "Commitments and Contingencies - EPA (Dollars InTh*ouands, Except Per Share Amounts)

Lawsuit - FERC Investigation" and "Legal Proceedings," for more REVENUES:., .

detailed informnation. "11'J Residential .......... ... .... $ 576,896 $. 516,926. ,$ 59,970 9.2 Com mercial ............... 529,847 485,016 "'44,831 OPERATING RESULTS Indistrial .... ... ...... 291,754 291,863 " (109) (b)

Other retail............ - (18,516) (6,093) (12,423) (203.9)

We evaluate operating results based on EPS. We have various Total Retail Revenues ....... 1,379,981 1,287,712 . 92,269 7.2 classifications of revenues, defined as follows:

W holesale ................ 308,269 413,809 (105,540) (25.5)

Retail: Sales of energy made to residential, commercial and Energy marketing ............ 15,440 14,521 919 6.3 Transmissiona ............ 132,450 98,549 33,901 34.4 industrial customers.

Othe r .,.. . . .. . .. . . . .. . .. . . 22,091 24,405 (2,314) (9.5)

Other retail: Sales of energy for lighting public streets and Total Revenues ......... 1,858,231 1,838,996 19,235 1.0 highways, net of revenue subject to refund.

OPERATING EXPENSES:

Wholesale: Sales of energy to electric cooperatives, municipal- Fuel and purchased power .... 534,864 694,348 (159,484) (23.0) ities and other electric utilities, the prices for which are either Operating and maintenance.... 516,930. 471,838 45,092.. .9.6 Depreciation and amortization. 251,534 203,738 47,796 23.5 based on cost or prevailing market prices as prescribed by FERC Selling, general and authority. This category also includes changes in valuations of administrative ........ . 199,961 184,427 15,534 8.4 contracts for the sale of such energy that have yet to settle.

Total Operating Expenses. 1,503,289 1,554,351 (51,062) (3.3)

Margins realized from these sales serve to lower our retail prices.

INCOME FROM OPERATIONS... 354,942 284,645 70,297- 24.7 Energy marketing: Includes: (i) transactions based on market prices and volumes generally unrelated to the production of our OTHER INCOME (EXPENSE):

Investment earnings (losses)... 12,658 (10,453) 23,1 1.1 221.1 generating assets; (ii) financially settled products and physical Other income .......... 7,128 29,658 (22,530) (76.0) transactions sourced outside of our control area; (iii) fees we Other expense .......... (17,188) (15,324) (1,864) (12.2) earn for marketing services that we provide for third parties; Total Other Income ........ 2,598 3,881 (1,283) (33.1) and (iv) changes in valuations of contracts related to those transactions listed in (i) and (ii) above that have yet to settle. Interest expense .............. 157,360 106,450 50,910 47.8 Transmission: Reflects transmission revenues, including those INCOME FROM CONTINUING OPERATIONS BEFORE based on tariffs with the SPP. INCOME TAXES ............ 200,180 182,076 18,104 9.9 Income tax expense........... 58,850 3,936 54,914 (c)

Other: Miscellaneous electric revenues' including ancillary service revenues and rent from electric property leased to others. INCOME FROM CONTINUING OPERATIONS ........... 141,330 178,140 (36,810) (20.7)

Electric utility revenues are significantly impacted by such things Results of discontinued operations, 33,745 -- 33,745 (c) as rate regulation, fuel costs, customer conservation efforts, the net of tax ..............

economy of our service area and competitive forces. Changing NET INCOME.. .......... 175,075.` 178,140 (3,065) (1.7)

" ,.q70 . Q70 * -- ". -*

weather also affects the amount of electricity our customers use. Preferred dividends ...... .... I 970 970 As a summer peaking utility, our sales are seasonal and the third NET INCOME ATTRIBUTABLE quarter typically accounts for our greatest sales. Hot summer TO COMMON STOCK.  :. $ 174,105 $ 17 7,170 $ (3,065) (1.7) temperatures and cold winter temperatures prompt more demand, especially among our residential customers. Mild weather reduces BASIC EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING:

customer demand. Our wholesale revenues are impacted by, Basic earnings available from among other factors, demand, cost and availability of fuel and continuing operations ........ $ 1.28 $ 1.69 $ (0.41) (24.3) purchased power, price volatility, available generation capacity and Discontinued operations, transmission availability. net of tax................. 0.30 - 0.30 WC Basic earnings per common share $ 1.58 $ 1.69 $ (0.11) (6.5)

Transmission:Reflects revenue derived from an SPP network transmission tariff.In 2009, our SPP netwoork transmission costs were $105.4 million. This amount, less $11.2 million retained by the SPP as administrationcost, was returned to us as revenue: In 2008, our SPP network.transmission costs were

$77.9 million with an administrationcost of $6.7 million retained by the SPR

• (*'Changeless than .0%.1o

• Change grehter than 1000%.

25-

WESTAR ENERGY I 2009 ANNUAL REPORT Gross Margin than the same period in 2008 and 27% cooler than the 20-year Fiel and purchased power costs fluctuate as retail and wholesale average. Industrial sales decreased due principally to the effects of sales requirements and unit costs change. As permitted by regula- recessionary conditions that served to reduce industrial demand tors, we adjust our retail prices to reflect changes in the costs of fuel for electricity. In addition, wholesale revenues decreased compared and purchased power needed to serve..our customersi Fuel and to 2008 due principally to a 17% lower average market price for purchased power costs for our wholesale customers are recovered these sales that was the result, primarily, of reduced demand and in prevailing market prices or based on a predetermined formula lower natural gas prices. Substantially all of the margins realized with a price adjustment approved by FERC. As a result, changes in on these sales are returned to our customers. The increase in fuel and purchased power costs are offset in revenues with a energy marketing was attributable primarily. to our having settled minimal. impact on net income. For this reason, we believe that forward contracts for the sale of electricity on favorable terms in gross margin, although a non-GAAP measurement, is a useful 2009. Offsetting these favorable settlements was lower demand measure for understanding and analyzing changes in our operating generally, lower market prices and more customers transacting performance from one period to the next. Gross margin is calculated through power pools and exchanges as opposed to entering into as total revenues less fuel and purchased power costs and SPP bilateral agreements with us.

network transmission costs. Transmission costs reflect the costs of Income from operations is the most directly comparable measure providing network transmission service. We recognize a significant to. gross margin that is calculated and presented in accordance amount of transmission revenue in connection with such service.

with GAAP in our consolidated statements of income. Our We record these costs in operating and maintenance expense on presentation of gross margin should not be considered in isolation our consolidated statements of income. The following table sum- or as a substitute for income from operations. Additionally, our marizes our gross margin for the years ended December 31,. 2009 presentation of gross'rhargin may hot be comparable to similarly and 2008.

titled measures reported by other companies. The following table Year Ended December 31, 2009 2008 Change %Change reconciles income from operations with gross margin for the years (Dollars InThousands) ended December 31, 2009 and 2008.

REVENUES: Year Ended December 31, 2009 - 2008 Change  % Change Residential............ $ 576,896 $ 516,926 $ 59,970 11.6 (Dollars InThousands)

Commercial.. .............. .529,847 485,016 44,831 9.2 Industrial ............. 291,754 291,863 (109) (a) Gross margin ................ $1,217,966 $1,066,777 $ 151,189 14.2 Other retail................ (18,516) (6,093) (12,423) (203.9) Add: SPP network.tran.smission ..

costs ............ . .... 105,401 77,871 27,530 35.4 Total Retail Revenues ....... 1,379,981 1,287,712 92,269 7.2 Less: Operating and maintenance Wholesale ................ 308,269 413,809 (105,540) (25.5) expense*...... ......... 516,930 471,838 45,092 9.6 Energy marketing ........... 15,440 14,521 919 .. 6.3 Depreciation and amortization Transmission .............. 132,450 98,549 33,901 34.4 expense................ 251,534 203,738 47,796 23.5 Other .......... .......... .22,091 24,405 (2,314) (9.5) Selling, general and .

administrative expense..-... 199,961 184,427 15,534 8.4 Total Revenues............ 1,858,231. 1,838,996 19,235 1.0 Less: Fuel and purchased Income from Pperations ........ $ 354,942 $ 284,645 $ 70,297 24.7 power expense ......... 534,864 694,348 (159,484) (23.0)

SPP network transmission costs ................. 105,401 77,871 27,530 35.4 Other Operating Expenses and Other Income and Expense Items Gross Margin ................ $1,217,966 $1,066,777 $ 151,189 14.2 Year Ended December 31, 2009 2008 Change %Change (a) Change less than 0.1%. (Dollars InThousands)

Operating and maintenance The following table reflects changes in electric sales for the years expense ................... $516,930 $471,838 $45,092 9.6 ended December 31, 2009 and 2008. No sales are shown for energy Op~erating and maintenance expense increased due primarily to a marketing, transmission or other. Energy marketing activities are

$27.5 million increase in SPP network transmission costs, which unrelated to the amount of electricity we generate.

was offset by higher transmission revenues of $33.9 million.

Year Ended December 31, 2009 2008

• Change %Change Maintenance expense increased $8.2 million due principally to a (Thousands of MWh) $5.5 million increase in amounts expensed for previously deferred SALES: storm costs and higher maintenance costs of $3.3 million for our Residential .................... 6,404 6,494 (90) (1.4) new generating facilities.

Commercial ................... 7,235 7,363 (128) (1.7)

Industrial ................... 5,145 5,769 (624) (10.8) Year Ended December 31, 2009 2008 Change %Change Other retail .................... 88 88 - . ,-

(Dollars InThousands)

Total Retail .............. 18,872 19,714 (842) , (4.3) Depreciation and amortization Wholesale .................... 8,788, 9,384 (596) (6.4) expense ................... $251,534 $203,738 $47,796 23.5 Total ......... I... ... ....... 27,660- 29,098 (1,438) (4.9)

We completed a number of large construction projects in the last two years. Consequently, depreciation and amortization expense The increase in gross margin in 2069 compared to 2008 was increased primarily as a result of these plant additions. During due principally to the increase in total -retail revenues. Total 2009, we recorded depreciation expense of $9.3 million for Emporia retail revenues increased primarily as a result of price increases Energy Center, $10.3 million for wind generation facilities and authorized by the KCC, which more than offset the decrease in $5.7 million for various transmission projects. During 2008, we total retail sales. The decreases in both residential and commercial recorded depreciation expense of $3.4 million for Emporia Energy sales were attributable primarily to cooler weather, particularly Center and $0.2 million for the same transmission projects described during the third quarter of 2009. As measured by cooling degree above. We did not record any depreciation expense for the wind days, the weather during the third quarter of 2009 was 14% cooler generation facilities in 2008 because they were not yet in service.

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WESTAR ENERGY I 2009 ANNUAL REPORT Year Ended December 31, 2009 2008* Change  %'Change shown in the table immediately below are further explained in the (Dollars InThousahds) descriptions that follow.

Selling, general.and administrative Year Ended December 31, 2008 2007 . Change %Change expense ................... $199,961 $184,427 $15,534 8.4 (Dollars InThousands, Except Per Share Amounts)

The increase in selling, general and administrative expense was due REVENUES: .

primarily to a $7.0 million increase in pension and other employee Residential .............. $ 516,926 $ 491,163 $ 25,763 5.2 benefit costs. In addition, we recorded a $4.0 million expense Commercial .............. 485,016 448,368 36,648 8.2 Industrial .................. 291,863 264,566 27,297 10.3 related to the settlement of the EPA lawsuit discussed in Note 13 Other retail .............. (6,093) (18,133) 12,040 66.4 of the Notes to Consolidated Financial Statements,"Commitments and Contingencies." Total Retail Revenues ....... 1,287,712 1,185,964 101,748 8.6 Wholesale ................. 413,809 380,443 33,366 8.8 Energy marketing ........... 14,521 36,978 (22,457) (60.7)

Year Ended December 31, 2009 2008 Change %Change Transmission(a) .............. 98,549 97,717 832 0.9 (Dollars InThousands) Other .................... 24,405 25,732 (1,327) (5.2)

Investment earnings (losses) ...... $12,658 $(10,453) $23,111 ' 221,1 Total Revenues'............ 1,838,996 1,726,834 112,162 6.5 Investment earnings increased compared to 2008 due principally OPERATING EXPENSES:

to our having recorded an $8.4 million gain on investments held Fuel and purchased power . 694,348 , 544,421. 149,927 27.5 in a trust to fund non-qualified retirement benefits. We recorded a Operating and maintenance: . 471,838 473,525 (1,687) (0.4)

$10.9 million loss on those investments in 2008. Depreciation and amortization. 203,738 192,910 10,828 5.6.

Selling, general and administrative ............ 184,427 178,587 5,840 , 3.3 Year Ended December 31, 2009 2008 Change %Change Total Operating Expenses ... 1,554,351 1,'389,443 164,908 "11.9 (Dollars InThousands)'

Other income ................. $7,128 $29,658 $(22,530) (76.0) INCOME FROM OPERATIONS .... .284,645 337,391 .(52,746) (15.6)

Other income decreased due principally to our having recorded OTHER INCOME (EXPENSE):

Investment(losses) earnings... (10,453) 6,031 (16,484) (273.3) less equity AFUJDC and corporate-owned life insurance (COLI) Other income ............. . 29,658 6,726 .. 22,932 340.9 benefit in 2009. We recorded $5.0 million of equity AFUDC in 2009 Other expense ............. . (15,324) (14,072) (1,252) . ý(8.9) compared to $18.3 million of equity AFUDC recorded during the Total Other Income (Expense) 3,881 (1,315) 5,196 . 395.1 prior year. This decrease reflects the completion of several large construction projects in 2009. In addition, we recorded $0.4 million Interest expense............... 106,'450 103,883 2,567 2.5 of COLI benefit in 2009 compared to $5.8 million of COLI benefit INCOME BEFORE INCOME TAXES 182,076 232,193 (50,117) (21.6) recorded in 2008. Income tax expense ....... .... 3,936 63,839 (59,903) (93.8)

NET INCOME ................ 178,140 168,354 9,786 5.8 Year Ended December 31, 2009 2008 Change %Change Preferred dividends ......... 970 970 - -

(Dollars InThousands) EARNINGS AVAILABLE FOR Interest expense ................ $157,360 - $106,450 $50,910 47.8 COMMON STOCK ........... 177,170 $ 167,384 $ 9,786 .5.8 In 2008, we reversed $17.8 million of accrued interest associated BASIC EARNINGS PERSHARE .... $ 1.69 $ 1.83 $ (0.14) (7.7) with uncertain income tax positions, which reduced interest.

i)Trqnsmission:Reflects revenue derived from an SPP network transmission expense. We did not record such a reversal in 2009 and, as a tariff In 2008, our SPP network transmission costs were $77.9 million. This result, our interest expense is higher..Absent this reversal, interest amount, less $6.7 million retained by the SPP as administrationcost, was expense increased $33.1 million compared to 2008 due principally i*turned to us as revenue. In 2007, our SPP network transmission costs were to interest on additional debt issued to fund capital investments. $82.0 million with an administrationcost of $9.2 million retained by the SPP.

Contributing to the increase was our having recorded $15.7 million less for capitalized interest as a result of completing several large Gross Margin construction projects in 2009. These factors were offset partially by The following table summarizes our gross margin for the years a $7.5 million decrease in interest related to lower interest rates'and ended December 31,2008 and 2007.

less borrowing under Westar Energy's revolving credit facility.

Year Ended December 31, 2008 2007 Change %Change Year Ended December 31, 2009 . 2008 Change %Change (Dollars InThousands)

(Dollars InThousands) REVENUES:

W Residential ....... ....... $ 516,926 $ 491,163 $ 25,763 5.2 Income tax expense ............ $58,850 . . $3,936 $54,914 Commercial ............... 485,016 448,368 36,648 8.2

(,)Changegreater than 1000%. Industrial ................. 291,863 264,566 27,297 10.3 Other retail ................ (6,093) (18,133) 12,040 66.4 In 2008, we recognized $28.7 million of previously unrecognized Total Retail Revenues........ 1,287,712 1,185,964 101,748. 8.6 income tax benefits associated with uncertain income tax positions Wholesale ............ .... 413,809 380,443 33,366 8.8 anid $14.6 million in state tax credits related to investment and jobs Energy marketing ............ 14,521 .. 36,978 (22,457) (60.7) creation within the state of Kansas, both of which decreased income Transmission ............... 98,549 97,717 832 0.9 tax expense. We did not recognize similar income tax benefits in Other .................... 24,405 25,732 (1,327) (5.2) continuing operations in 2009. Total Revenues .............. 1,838,996 1,726,834 112,162 6.5 Less: Fuel and purchased power 2008 Compared to 2007 expense ............. 694,348 544,421 149,927 27.5 Below we discuss our operating results for the year ended SPP network transmission December 31, 2008, compared to the results for the year ended costs ................. 77,871 81,998 (4,127) (5.0)

December 31, 2007. Significant changes in results of operations Gross margin ................ $1,066,777 $1,100,415 $ (33,638) (3.1) 27-

WESTAR ENERGY I 2009 ANNUAL REPORT The following table reflects changes in electric sales for the years Other Operating Expenses and Other Income and ended December 31, 2008 and 2007. No sales are shown for energy Expense Items marketing, transmission or other. Energy marketing activities are Year Ended December 31, 2008 2007 Change  % Change unrelated to the amount of electricity we generate. '

(Dollars InThousands)

Year Ended December 31, 2008 2007 Change %Change Depreciationand amortization (Thousands of MWh) expense .: ...... . . $203,738 $192,910 $10,828 , 5.6 SALES: Depreciation and amortization expense increased $10.8 million due Residential ................... 6,494 6,677 (183) (2.7) to depreciation expense associated with more plant being in service.

Commercial .................... 7,363 7,537 (174) (2.3)

Industrial ..................... 5,769 5,819 (50) (0.9)

Other retail .................... 88 91 (3) (3.3) Year Ended December 31, 2008 2007 Change %Change (Dollars InThousands)

Total Retail ................... 19,714 20,124 (410) (2.0)

Wholesale .................... 9,384 10,026 (642) (6.4) Selling, general and administrative expense .................... $184,427 $178,587 $5,840 3.3 Total ....................... 29,098 30,150 (1,052) (3.5)

The $5.8 million increase in selling, general and administrative expense was due primarily to a $3.2 million increase in legal costs.

The decrease in gross margin in 2008 corripared to 2007 was due Various court orders require that we .pay legal fees incurred by two primarily to the decrease in energy marketing, cooler weather, former executive officers related to the defense of criminal charges reduced margins on power sold to a few large, industrial customers filed against them by the United States Attorneys' Office. Higher and additional planned outages at our base load plants. Energy legal expenses were also related to more regulatory activities. Also marketing decreased due principally to the need to focus resources contributing to the increase was $3.9 million in additional labor costs toward serving our retail customers during outages, changes in the and a $1.4 million increase in bad debt expense. Offsetting these relationships of prices among energy products historically traded increases was a $5.0 million decrease in employee benefits expense.

and the continuing maturation of energy markets in which we participate reducing margin opportunities. Contributing to the Year Ended December 31, 2008 2007 Change %Change decrease in energy marketing was the recognition of a $3.2 million (Dollars in Thousands) customer refund obligation and a $3.0 million obligation related tb claims made by an independent system operator seeking the Investment (losses)earnings ..... $(10,453) $6,031 $(16,484) (273.3) re-pricing of transactions conducted within that operator's region Investment earnings decreased $16.5 million due primarily to our in prior periods. As measured by cooling degree days, the weather having recorded a $10.9 million loss on investments held in a trust during 2008 was 20% cooler than 2007 and 9% cooler than the used to fund retirement benefits. We recorded a $4.8 million gain 20-year average. This cooler weather was the primary cofntributor on these investments. in 2007.

to the decreases in residential and commercial sales. Additionally, in 2008, we sold power to a few large industrial customers under Year Ended December 31, 2008 2007 Change %Change contracts to which the RECA did not apply and, primarily as a " ' (Dollars InThousands) result of higher fuel costs, margins on these sales were $9.9 million Other income .............. $29,658 $6,726 $22,932 340.9 lower compared to 2007. All of these contracts expired in 2009.

Furthermore, we had additional planned outages at our base load Other income increased $22.9 million due primarily to our having plants in 2008 that were longer in duration than in 2007. These recorded $18.3 million of equity AFUDC in 2008 compared to additional planned outages required us 'to use more expensive. $4.3 million of equity AFUDC recorded in 2007. Also contributing fuel and to incuir additional purchased power expense, which to the increase was a $4.8 million gain on the sale of oil in 2008.

resulted in reduced margins on power sold despite higher prevailing In addition, we recorded $5.8 million of COLI benefit in 2008 market prices. compared to $0.7 million of COLI benefit recorded in 2007.

The following table reconciles income from operations with gross Year Ended December 31, 2008 2007 Change %Change margin for the years ended December 31, 2008 and 2007.

(Dollars InThousands)

Year Ended December 31, 2008 2007 ' I Change %Change Interest expense ................ $106,450 $103,883 $2,567 2ý5 (Dollars InThousands)

Interest expense increased $2.6 million due primarily to interest on Gross margin. : ............ ' $1,066,777 $1,100,415 $- (33,638) (3.1) additional debt issued to fund investments in capital equipment.

Add: SPP network transmission costs ................. 77,871 81,998 (4,127) (5.0)

Partially offsetting this increase was the reversal of $17.8 million of Less: Operating and maintenance accrued interest associated with uncertain tax liabilities during 2008.

expense ............... 471,838 473,525 (1,687) (0.4)

Depreciation and amortization Year Ended December 31, 2008 2007 Change %Change expense ............... 203,738 192,910 10,828 5.6 (Dollars InThousands)

Selling, general and administrative expense. 184,427 178,587 5,840 3.3 Income tax expense ............ $3,936 $63,839 $(59,903) (93.8)

Income from operations ........ $ 284,645 $ 337,391 $ (52,746) (15.6) Income tax expense decreased $59.9 million due to the recognition of. $28.7 million of previously unrecognized tax benefits and the recognition of $14.6 million in state tax credits related to investment and jobs creation within the state of Kansas.

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WESTAR ENERGY I 2009 ANNUAL REPORT Financial Condition LIQUIDITY AND CAPITAL RESOURCES A number of factors affected amounts recorded on our balance Overview sheet as of December 31,2009, compared to December 31, 2008.

Available sources of -funds to operate our business include Cash and cash equivalents decreased $19.1 million. Conditions in internally generated cash, Westar Energy's revolving credit facility.

capital markets for short-term borrowing improved throughout and access to capital markets. We expect to meet our day-to-the year as evidenced by lower interest rates. Therefore, during the day cash requirements including, among other items: fuel and year we decreased cash holdings to levels more consistent with our purchased power, dividends, interest payments, income taxes historical practice. and pension contribtitions, using primarily internally generated cash and borrowings under the revolving credit facility. To meet The fair market value of energy marketing contracts decreased the 'cash requirements for our capital investments, we expect to

$45.9 million to. $4.4 million at December 31, ,2009..This was use internally generated cash, borrowings under the revolving due principally to the fair value measurement of a fuel supply credit facility and the issuance of debt and equity securities in contract decreasing $36.6 million. The portion of this fuel supply the capital markets. We also use proceeds from the issuance of contract outstanding the entire period decreased $19.0 million securities to repay borrowings under the revolving credit facility, due to decreased coal prices. Further decreasing .the, fair value with those borrowed amounts principally related to investments in measurement of this fuel supply contract was the settlement of a capital equipment, and for working capital and, general corporate

$17.6 million net gain.position during the year.

purposes. The aforementioned sources and uses of cash are similar Prepaid expenses decreased $21.6 million and accrued interest to our historical activities. For additional information on our future increased $34.8 million since December 31, 2008, due principally cash requirements, see "- Future Cash Requirements" below..

to a policy change under which we no longer pay interest on COLI Beginning late in' the first quarter, capital market conditions policies in advance.

improved significantly during 2009 compared to the unprecedented In addition, other rion-current assets increased $59.8 million and volatility experienced in late 2008 and early'2009. Given these other current liabilities decreased $10.2 million due primarily to a improvements, we plan to increase out capital spending in 2010.

policy change to cease borrowing against future increases in the Additionally, we expect to contribute less to our pension trust in cash surrender value of oui COLI policies. 2010. We do not expect the current economic conditions to impact our ability to pay dividends. Uncertainties afecting our ability to Regulatory assets, net of regulatory liabilities, decreased $114.2 million meet cash requirements include, among, others: factors affecting to $715.0 million at December 31, 2009, from $829.2 million at revenues described in "- Operating Results" above, economic December 31, 2008. Total regulatory assets decreased $96.5 million conditions, regulatory actions, compliance with environmental due primarily to a $70.2 million decrease in deferred employee regulations, and conditions in the capital markets.

benefit costs as a result of favorable pension plan asset performance and pension contributions, $19.1 million amortization of deferred Capita! Resources storm costs, and $10.3 million decrease in net amounts due from On February 15,2008, FERC granted our request to issue short-term customers for future income taxes. Total regulatory liabilitie's securities and pledge KGE mortgage bonds in order to increase the increased $177 million due principally to a $27.0 millioni increase in. size of Westar Energy's revolving credit facility from $500.0 million our refund obligation related to the RECA and an $18.0 million to $750.0 million. On February 22, 2008, a syndicate of banks in the increase in removal cost for amounts collected, but not yet spent to credit facility increased their commitments to $750.0 million in the remove retired assets. Increases were partially offset by a $30.3 million aggregate with $730.0 million of the commitments terminating on decrease in the fair value of fuel supply contracts. March 17, 2012, and the remaining $20.0 million of commitments Long-term debt, net of current maturities, increased $298.2 million terminating on March 17, 2011.,

due principally to the issuance of $300.0 million of first mortgage Lehman Brothers Commercial Paper, Inc. (Lehman Br**diers) was bonds as discussed in detail in Note 9 of the Notes to Consolidated the participating lender with respect to the $20.0 million commit-Financial Statements, "Long-Term Debt." ment terminating on March 17, 2011. On October 5, 2008, Lehman Unamortized investment tax credits increased $68.4 million due to Brothers filed for bankruptcy protection. Under terms of the credit incentives we earned related to investments in plant located in the facility, we have the right to replace Lehman Brothers should state of Kansas. another lender or lenders be willing to replace the $20.0 million commitment. To date, we have elected not to seek a replacement Accrued employee benefits decreased $92.6 million due primarily lender. As a result, until such time as we seek and locate a replace-to favorable plan asset performance and our having contributed ment lender or lenders, the revolving credit facility is limited to

$44.6 million to Westar Energy's and Wolf Creek's pension plans. $730.0 million.

Asset retirement obligations increased $24.4 million due predom- On January 27, 2010, FERC approved 'our request for authority to inately to a $20.3 million increase in our ARO to reflect revisions to issue short-term securities and pledge KGE mortgage bonds in the estimated costs to decommission Wolf Creek. See Note 14 of order to increase the size'ofWestar Energy's revolving credit facility the Notes to Consolidated Financial Statements, 'Asset Retirement to $1.0 billion. We haye not yet exercised our authority to increase Obligations," for additional information. the size of the facility.'As of February 17, 2010, $228.1 million had been borrowed and an additional $23.9 million of lettefs of credit Other long-term liabilities decreased $37.9 million due primarily had been issued under the revolving credit facility. In addition,'we to a $36.4 million decrease in our long-term liability for uncertain had $7.3 million in 'ash and cash equivalents as of the same date.

income tax positions and related accrued interest due to the settlement of an IRS examination. See Note 10 of the -Notes to A* default by Westar Energy or KGE under other indebtedness Consolidated Financial Statements,"Taxes,"for additional detail on totaling more than $25.0 million would be a default under this our uncertain income tax positions. facility. Westar Energy is required to maintain a consolidated indebt-edness to consolidated capitalization ratio not greater than 65% at 29-

WESTAR ENERGY 1 2009 ANNUAL REPORT all times. At December 31,ý2009, our ratio was 56%. Available On December 28, 2007, Westar Energy delivered 3.1 million newly liquidity under the facility is not impacted by a decline in Westar issued shares of its common stock to a bank and received proceeds Energy's credit ratings. Also, the facility does not contain a'.material of $75.0 million as partial settlement of the forward sale agreement.

adverse effect clause requiring Westar Energy to represent, prior to Additionally, on February 7,2008, Westar Energy delivered 2.1 million each borrowing, that no event resulting in a material adverse effect shares and received proceeds of $50.0 million as partial settlement has occurred. of the forward sale agreement. On June 30, 2008, Westar Energy completed the forward sale agreement by delivering 3.0 million The Westar Energy and KGE'mortgages,.each contain provisions shares and receiving proceeds of $73.0 million.

restricting the amount of first mortgage bonds that can be issued by each entity. We must comply with such restrictions prior to On August 24, 2007, Westar Energy entered into a Sales Agency the issuance of additional first mortgage bonds or other secured Financing Agreement with a bank. Under the terms of the agree-indebtedness. ment, Westar Energy may offer and sell shares of its common stock from time to time through the bank, as agent, up to an aggregate of Under the Westar Energy mortgage, the issuance of bonds is subject $200.0 million for a period of no more than three years. Westar to limitations based on the amount of bondable property additions' Energy will pay the bank a commission equal to 1% of the sales In addition, so long as any bonds issued prior to January 1, 1997, price of all shares sold under the agreement. During 2007 Westar remain outstanding, the mortgage prohibits additional first mortgage Energy sold 0.8 million shares of common stock through the bank bonds from being issued, except in connection with certain refund-for $20.0 million and received $19.8 million in proceeds net of ings, unless Westar Eneegy's unconsolidated net earnings available commission. During 2008 Westar Energy sold 1.1 million shares of for interest, depreciation and property retirement (which as defined, common stock through the bank for $26.9 million ar~d received does not include earnings br losses attributable to the ownershipof

$26.7 million in proceeds net of commission: Westar Energy did not securities of subsidiaries), for a period of 12 consecutive months sell any shares of common stock under this agreement during. 2009.

within 15 months preceding the issuance, are not less than the gre ater In January and February 2010, Westar Energy issued 1.2 million of twice the' annual interest charges on, and 10% of the principal shares of common stock through the bank for $25.0 million. Westar amount of, all first mortgage bonds outstanding after giving effect Energy may issue additional shares of common stock in 2010..

to the proposed issuance. As of December 31, 2009, based on ,an assumed interest rate of 5.875%, approximately $350.0 million On April 12, 2007, Westar Energy entered into a Sales Agency principal *amountof additional first mortgage bonds could be issued Financing Agreement with the same bank. As of July 12, 2007, under the most restrictive provisions in the mortgage, except in Westar Energy had sold 3.7 million shares of its common stock for connection with certain refundings. $100.0 million pursuant to the agreement. Westar Energy received

$99.0 million in proceeds net of a commission.

Under the KGE mortgage, the issuance of bonds is subject to limitations based on the amount of bondable property additions. In Westar Energy used the proceeds from the issuance of common addition, the mortgage prohibits additional first mortgage bonds stock to repay borrowings under its revolving credit facility, with from being issued, except in connection with certain' refundings, those borrowed amounts principally related to our investments unless KGE's net earnings before income taxes and before provision in capital equipment, as well as for working capital and general for retirement and depreciation of property for a period of 12 consec- corporate purposes.

utive months within 15 months preceding the' issuance are not less than either two and one-half times the annual interest 'charges on, Cash Flows from Operating Activities or 10% of the principal amount of, all KGE first mortgage 'bonds Operating activities provided $478.9 million of cash in the year outstanding after giving effect -to the proposed issuance. As of ended December 31, 2009, compared with cash provided from December 31, 2009, approximately $550.0 million principal amount operating activity of $274.9 million 'during the same period of of additional KGE first mortgage bond6 could be issued under the 2008.. Principal contributors to the increase were our having paid most restrictive provisions in the mortgage. $418.9 million less for fuel and purchased power and $50.5 million less for interest on our COLI policies. Partially offsetting increases Common Stock Issuance were our having received $233.3 million less in customer receipts On May 29, 2008, Westar Energy entered into an underwriting during 2009 due primarily to lower cash receipts from our wholesale agreement relating to the offer and sale of 6.0 million shares of its customers which more than offset higher cash receipts from our common stock. On June 4,2008, Westar Energy issued all 6.0 million retail customers and our having paid $42.1 million more in interest shares and received $140.6 million in total proceeds, net of under- on debt.

writing discounts and fees related to the offering.

Operating activities provided $274.9 million of cash in the year On November 15, 2007, Westar Energy entered into a forward sale ended December 31, 2008, compared with cash provided from agreement with a bank, as forward purchaser, relating to 8.2 million operating activity of $246.8 million during the same period of 2007 shares of its common stock. The forward sale ,agreement provided Principal contributors to the increase were additional collections for the sale of Westar Energy's common stock within approximately from customers during. 2008 due in large part to our having twelve months at a stated settlement price. In connection with the recovered higher fuel costs from customers through the RECA and forward sale agreement, the bank borrowed an equal number of $109.9,million in lower income tax payments in 2008 compared shares of Westar Energy's common stock from stock lenders and to the prior year. Offsetting these increases were: our having paid sold the borrowed shares to another bank under an underwriting $53.2 million to restore our electrical system which was severely agreement among Westar Energy and the banks. The underwriters damaged by an ice storm in December 2007; additional outages subsequently offered the borrowed shares to the public, at a price occurring in 2008 at our base load plants; our having paid more per share of $25.25. for fuel and purchased power in 2008 compared to the prior year; and during 2008, we paid $15.7 million more for our share of Wolf Creek's refueling outage.

"jj."

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WESTAR ENERGY 1 2009 ANNUAL REPORT Cash Flows used in Investing Activities. On January 25, 2010, we announced a settlement with the DOJ Our principal use of cash for investing purposes relates to growing of a pending lawsuit over allegations regarding environmental air and improving our utility plant. The utility business is capital regulations. The settlement was filed with the U.S. District Court intensive and requires significant investment in plant on an annual in the District. of Kansas, seeking its approval. The settlement basis. We spent $555.6 million in 2009, $919.0 million in 2008 and provides for -us to install an SCR system on one of the three

$743.8 million in 2007 on additions to property, plant and equip- Jeffrey Energy .Center coal units by the end of 2014. We have not ment. The decrease in 2009 was due principally to the completion yet engineered, this project; however, our preliminary estimate of of environmental projects, wind generation projects, transmission the cost of this SCR is approximately $200.0 million: Depending projects and the construction of Emporia Energy Center, which on the NOx emission reductions attained by the single SCR and required significant amounts of cash in 2008 and 2007. attainable through the installati on of other controls on the other two Jeffrey Energy Center coal units, a second SCR system would Cash. Flows from Financing Activities be installed on another Jeffrey Energy Center coal unit by the end We received net cash flows from financing activities of $97.2 million of 2016, if needed to miteet NOx reduction targets. Recovery of costs in 2009. Proceeds from the issuance of long-term debt provided to install these systems is subject to the approval of our regulators.

$347.5 million and proceeds from short-term debt provided We believe these costs are appropriate for inclusion in the prices

$679 million. We used cash to repay $196.8 million of long-term we are allowed to charge our customers. We will also inyest debt and to pay $122.9 million in dividends.' $5.0 million over six years in environmental mitigation projects which we will own and $1.0 million in environmental mitigation We received net cash flows from financing activities of $648.7 million projects that will be owned by a qualifying third party. We will also in 2008. Proceeds from the issuance of long-term debt provided pay a $3.0 million civil penalty. Accordingly, we have recorded a

$544.7 million, proceeds from the issuance of cdriim'oh-n*tock provided $4.0 mnillion liability pursuant to .the terms of the settlement..We

$293.6 million and borrowings from COLI provided $64.3 millicin. expect the court to make a decision in 2010 following the expiration We used cash to pay $109.6 million in' dividends and to retire of a period for public comments on March 1, 2010. If the court does

$101.3 million of long-term debt. not approve the settlement, and the lawsuit proceeds to trial, In 2007, we received net cash flows from financing activities of decision in favor of the DOJ and EPA could require us to update or

$502.8 million. Proceeds from the issuance of long-term.debt install, additional emissions controls at Jeffrey Energy Center, and provided $322.3 million and proceeds from the issuance of common the additional controls could be more extensive than those required stock provided $195.4 million. We used cash to pay $89.5 million by the'current settlement. Additionally,. we could, be required to in dividends. update or install emissions controls at our other coal-fired plants, pay fines or penalties orntake other remedial action. Our ultimate Cash Flows used in Investing Activities.. costs to resolve the lawsuit:could-be material and we would expect of Discontinued Operations to incur substantial legal fees and expenses related to the defense We paid Protection One $22.8 million for its share of the net tax of the lawsuit. We are not able to estimate the possible loss or range benefit related to the net operating loss carryforward arising from of loss if the court were to not approve the settlemenrt.

our sale of Protection One.

Capital expenditures for 2009 and anticipated capital expenditures Future Cash Requirements including costs of removal for 2010 through 2012 are shown in the Our business requires significant capital investments.Through 2012, following table.

we expect to need cash primarily for utility construction programs Actual designed to improve and expand facilities related to providing 2009 2010  : 2011 2012 electric service; whidh include but are not limited to expenditures -" (InThousands) for envir6nmerrtal improvements at our coal-fired power plants, Generation: "

riew transmission lines and other improvements to 'our power Replacements and other .... $103,867 $ 99,900... $106,200 $ 126,600 plants, transmission and distribution lines, and ecquipment. We Additional capacity ....... 16,598 12,300 10,100 -

Wind generation -I.... 69,461 - - -

expect to meet these cash needs with internally generated cash Environmental ":............ 85,218 181,200 350,100 414,700 flow, borrowings under Westar Energy's revolving credit facility and Nuclear fuel ............... 19,751 36,100 26,700 26,100 through the issuance of securities'in the capital markets. 11 . . . . . .

Transmission '

156,577 203,600 167,800 175,100 Distribution:

We have incurred and expect to continue to incur material costs Replacements, new customers to comply with existing and future environmental laws and and other.... .. .. ... 92,650 102,300 114,600 118,600 regulations, all of which are subject to changing interpretations Smart grid . . : .- .8,900 - 9,200 12,300 and amendments. Changes to environmental regulations could Other..................... . 11,515 20,300 16,000 25,300 result in significantly more stringent laws and regulations or Total capital expenditures . ' $ 555,637 $664,600 $ 800,700 $ 898,700 interpretations thereof that could affect our company and industry in particular. These laws, regulations and interpretations could ý, We plan to incuradditionalexpenditures related to our PrairieWind Transmission result in more stringent terms in our existing operating permits or joint venture.

Excluding DOE matchinggrant.

a failure to obtain new permits could cause a material increase in our capital or operational costs and could otherwise have a material effect on our operations. While we believe we can generally recover environmental costs through price increases, there is no guarantee that we will be able to do so.

31

WESTAR ENERGY 12009 ANNUAL REPORT We prepare these estimates for planningi purposes and revise our In addition, KGE amended its Mortgage .and Deed of Trust, dated estimates from time to time. Actual expenditures will differ, perhaps April 1, 1940, as supplemented, in June 2009 to increase the materially, from our estimates due to changing environmental maximum amQunt of KGE first mortgage bonds authorized to be requirements, changing costs, delays in engineering, construction issued from $2.0 billion to $3.5 billion.

or permitting, changes in the availability and cost of capital,.and On November *25, 2008, Westar Energy issued $300.0 million other factors discussed.abovein"Item 1A. Risk Factors." We and our principal amounrt of first mortgage bonds at a discount yielding generating plant .co-owners periodicallyevaluate- these estimates 8.750%, bearing stated interest at 8.625% and 'maturing on and this may result in ,frequent and .possibly material changes December 1, 2018: We received net proceeds of $295.6 million.

in actual costs. In addition, these amounts ,do not include any estimates for potentially-new environmental requirements relating On May 15, 2008, KGE issued $150.0ý million principal amount to mercury and CO 2 emissions.' of first mortgage bonds in a private placement transaction with

$50.0 million of the principal amount bearing interest at 6.15% and Maturities of long-term debt as of December 31,2009, are as follows. maturing on May 15, 2023, and $100.0 million bearing interest at Year . .* " Principal Amount 6.64% and maturing on May 15, 2038.

(In Thousands)

In January 2008, we increased the size of our 36-month equipment 2010 " I... ."............ $ 1,345 financing loan agreement to $3.9 million for computer equipment 2011............ 61 purchases made in 2008. As of December 31, 2009, the balance of 2012.......... . this loan was,$1.4 million.

2013 .. .. . ...... : .... ......... ... ........ -

Thereafter . .. ...... ... ....................... . .. 2,495,663 Proceeds from.the issuance of first mortgage bonds were used to Total long-term' debt maturities . . ..... $2,497,069 repay borrowings under Westar Energy's revolving credit, facility, with those borrowed amounts principally related to investments Pension Obligation in capital equipment, as well as for working capital and general corporate purposes.

As provided in the September 11, 2009, KCC order regarding pension and post-'retirement benefits, we expect to, fund our Debt Covenants pension plan each year at least to a level equal to our current year Some of our debt instruments contain restrictions that require us to pension expense. In addition, our pension plan contributions must maintain leverage ratios as defined in the agreements. We calculate also meet the minimum funding requirements under the Employee these ratios in accordance with our credit agreements. These ratios Retirement Income Security Act as .amended by the Pension are used solely to determine compliance with our various debt Protection Act...We may contribite additional amounts from time covenants. We were in compliance with these, covenants as of to time. December 31, 2009. -

We contributed to,0ur pension trust $37.3 million in 2009 and Credit Ratings

$15.0 million in 2008. We expect to contribute approximately Moody's Investors Service (Moody's), Standard &. Poor's Ratings

$22.4 million in 2010: In 2009 and 2008, we also funded $73 million Group (S&P) and Fitch Investors Service (Fitch) are independent and $5.5 nmilion, respectively, of contributions to Wolf Creek's credit-rating agencies that rate our debt securities.' These ratings pension trust. In 2010, we expect to fund $4.1 million of contribu- -indicate each agency's assessment of our ability to.pay interest and tions to Wolf Creek's pension trust. See Notes 11 and 12 of the Notes principal when due on our securities.

to Consolidated Financial Statemen'ts, "Employee Benefit Plans" and"Wolf Creek Employee Benefit Plans,"for additional discussion In August 2009, Moody's upgraded its credit ratings for Westar of Westar Energy and Wolf Creek benefit plans, respectively. Energy's and KGE's first mortgage bonds/senior secured debt securities: .S&P changed its rating outlooks for Westar Energy's Debt Financings and KGE's debt securities from stable to positive in April 2009 As of December 31, 2009, we had $121.9 mnillion of variable rate, and upgraded its credit rating for Westar Energy's unsecured debt tax-exempt bonds. Prior to February 2008, interest rates payable securities in November 2008. In August 2008, Fitch upgraded its under these bonds had historically been set by auctions, which credit ratings for Westar Energy's first mortgage bonds/senior occurred every 35 days. Since then, auctions for these bonds have secured debt securities and unsecured debt securities as well as failed, resulting in alternative index-based interest rates for these KGE's first mortgage bonds/senior secured debt securities.. Fitch bonds of between less than 1% and 14%. On July 31,2008, the KCC also changed its outlook for our ratings from positive to stable.

approved our request for authority permitting us to remarket or refund all or part of these auction rate bonds. On each of As of February, 17, 2010, ratings with these agencies are as shown October 15, .2009, October 10, 2008, and August 26, 2008, KGE in the table.below..

refinanced $50.0 million of auction rate bonds at fixed interest rates Westar Energy KGEFirst Westar Energy of 5.00%, 6.00% and 5.60%, respectively,ýall withmaturity dates of First Mortgage , Mortgage Unsecured Rating Bond Rating Bond Rating Debt Outlook June 1, 2031. We continue to monitor the credit markets and evaluate Moody's: .. ... Baal Baal. Baa3 Stable our options with respect to the remaining auction rate bonds. S&P................. '. BBB BBB BBB- Positive On August 3, 2009, we repaid $145.1 million principal amount of Fitch ................ BBB+ BBB+ BBB Stable 7125% unsecured senior notes with borrowings under Westar In general, less favorable credit ratings make borrowing more Energy's revolving credit facility.

difficult and costly. Under Westar Energy's revolving credit facility On June 11, 2009, KGE issued $300.0 million principal amount of our cost of borrowing is determined in part by our credit ratings.

first mortgage bonds at a discount yielding 6.725%, bearing stated However, our ability to borrow under the revolving credit facility is interest at 6.70% and maturing on June 15, 2019. KGE received net not conditioned on maintaining a particular credit rating. We may proceeds of $297.5 million. enter into new credit agreements that contain credit rating condi-tions, which could affect our liquidity and/or our borrowing costs.

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WESTAR ENERGY I 2009 ANNUAL REPORT Factors that impact our credit ratings include a combination of Contractual Cash Obligations objective and subjective criteria. Objective criteria include typical The following table summarizes the projected future cash payments financial ratios, such as total debt to total capitalization and for our contractual obligations existing as of December 31, 2009.

funds from operations to total debt, among others, future capital Total 2010 2011-2012 2013-2014 Thereafter expencitures and our access to liquidity including committed lines of credit, Subjective criteria include such items as the quality and (InsThousands) credibility of management, the political and regulatory environment Long-term debt(,) .... $2,497,069 $ 1,345 $ 61 $250,000 $2,245,663 we operate in and an assessment of our governance and risk Interest on long-term management practices. debt') ........... 2,476,246 148,440 296,880 296,880 1,734,046 Adjusted long-term Certain of our derivative instruments contain collateral provisions debt .......... 4,973,315 149,785 296,941 546,880 3,979,709 subject to credit agency ratings of our senior unsecured debt. If Pension and our senior unsecured debt ratings were to decrease or fall below post-retirement investment grade, the counterparties to the derivative instruments, benefit expected pursuant to the provisions, could require collateralization on contributions(O . ... 37,700 37,700 - - -

derivative instruments. The aggregate fair value of all derivative Capital leases(') ..... 169,841 17,685 ' 26,316 14,293 111,547 instruments with objective credit-risk-related contingent features Operating leases(e) ...

1. ... .. . .

487,569 49,181 98,903 89,893 249,592 Fossil fueV) . 1,452,660 303,476 528,925 217,037 403,222 that were in a liability position as of December 31, 2009, was 1 . . . .. . .

Nuclear fuel( . 353,606 34,232 46,452 45,301 . 227,621

$1.4 million, for which we had posted no collateral. If all credit-risk- Unconditional purchase related contingent features underlying these agreements had been obligations ....... 186,690 113,946 58,084 14,660 triggered as of December 31, 2009, we would have been required Unrecognized income to provide to'our counterparties $0.1 million of additional collateral tax benefits including after taking into consideration the offsetting impact of derivative interest(')......... 6,079.  : 6,079 assets and net accounts receivable. Total contractual obligations, including Capital Structure adjusted long-term As of December 31, 2009 and 2008, our capital structure excluding debt .......... $7,667,460 $ 712,084 $1,055,621 $928,064 $4,971,691 short-term debt was as follows: ('See Note 9 of the Notes to Consolidated FinancialStatements, "Long-Term 2009 2008 Debt,"for individual long-term debt maturities.

(b)We calculate interest on our variable rate debt based on the effective 'interest Common equity... 47% 48% rate as of December 31, 2009.

Preferred stock ............ ... .... ..... ..... .. ..<1% <1%

r Our contribution amounts for future periods are not yet known. See Notes 11 Long-term debt . 52% 51%

and 12 of the Notes to ConsolidatedFinancialStatements, "Employee Benefit Plans"and "Wolf Creek Employee Benefit Plans,'for additional information OFF-BALANCE SHEET ARRANGEMENTS regardingpension and post-retirementbenefits. .

(d)Ih*cludes principal and interest on capital leases, including our 8% leasehold Forward Equity Transaction interest in Jeffrey Energy Center On November 15, 2007, Westar Energy entered into a forward sale ( Includes leases for La Cygne unit 2, operatingfacilities, operating equipment, office space,office equipment,vehicles and railcarsas well as other miscellaneous agreement relating to 8.2 million shares of its common stock. The commitments.

forward sale agreement provided for the sale of Westar Energy's WCoal and naturalgas commodity and transportationcontracts.

common stock within approximately twelve months at a stated WUranium concentrates, conversion, enrichment,fabrication and spent nuclear settlement price. On December 28, 2007, Westar Energy delivered fuel disposal.

3.1 million newly issued shares of its common stock to a bank We'have an additional $3.6 million of unrecognized income tax benefits, and received proceeds of $75 .0-million as partial settlement of the including interest, that are not included in this table because we cannot forward sale agreement. Additionally, on February 7, 2008, Westar reasonably estimate the timing of the cash payments to taxing authorities, Energy, delivered 2.1 million shares and received proceeds of assumingthose unrecognized tax benefits are settled at the amounts accrued as

$50.0 inillion as partial settlement of the forward sale agreement. of December 31, 2009.

On June 30, 2008, Westar Energy completed the forward sale.

agreement by delivering 3.0 million shares of its common stock Commercial Commitments and receiving proceeds of $73.0 million.. Our commercial commitments as of December 31, 2009, consist of outstanding letters of credit that expire in 2010, some of which As of December 31, 2009, we did not have any additional off-automatically renew annually. The letters of credit are comprised of balance sheet financing arrangements, other than our operating

$9.8 million related to worker's compensation, $6.2 million related leases entered into in the ordinary course of business. For additional to new transmission projects, $4.5 million related to our energy information on our operating leases, see Note 17 of the Notes to marketing and trading activities and $4.5 million related to other Consolidated Financial Statements, "Leases."

operating activities for a total outstanding balance of $25.0 million.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS OTHER INFORMATION In the course of our business activities, we enter into a variety of Stock-Based Compensation obligations and commercial commitments. Some of these result We use restricted share units (RSUs) exclusively for our stock-based in direct obligations reflected on our consolidated balance sheets compensation awards. Total unrecognized compensation cost while others are commitments, some firm and some based on related to RSU awards was $2.6 million as of December 31, 2009.

uncertainties, not reflected in our underlying consolidated financial We expect to recognize these costs over a remaining weighted-statements. The obligations listed below include amounts for average period of 2.3 years. There were no modifications of awards on-going needs for which contractual obligations existed as of during the years ended December 31, 2009, 2008 or 2007 December 31, 2009. 33-

WESTAR ENERGY I 2009 ANNUAL REPORT Environmental Regulation the primary beneficiary. Pursuant to the amended guidance, there On May 22, 2009, the State .of Kansas enacted legislation that is no exclusion, or"grandfathering," of VIEs that were not consoli-mandates, among other requirements, that more energy be dated under prior guidance. This amended guidance is effective for derived from renewable sources. According to the law, in years annual reporting periods beginning after November 15,.2009. We 2011 through 2015 net renewable generation capacity must be adopted the guidance effective January 1, 2010, and, as a result, 10% of the average peak demand for the three prior years. This expect to consolidate VIEs that were previously not consolidated.

requirement increases to 15% for years 2016 through 2019 and The VIEs we expect to consolidate include certain trusts that hold 20% for 2020 and thereafter. A further provision of the law is that assets we lease. Consolidation of theseVIEs will eliminate the lease the KCC may elect not to enforce these requirements if they result accounting we now report for these assets and result in changes in in more than a 1% increase in our prices. We estimate that we our consolidated assets, debt and equity. Any changes in net income may need to add about '150 to 200 MW of additional renewable that occur as a result of the elimination of lease accounting and generating capacity to meet the 2011 requirement. In January consolidation ofVIEs will be offset through the recognition of either 2010, we reached an agreement with a third party to acquire the a regulatory asset or liability. Consolidation of these VIEs will also development rights for a site we believe is capable of supporting result in changes to our consolidated statements of cash flows up to 500 MW of wind generation. We expect to develop the site in related to each VIE's cash activity. We continue to evaluate the phases with the initial phase potentially completed by the end of impact that consolidating these VIEs will have on our consolidated 2012, subject to regulatory approvals and the pace of development financial results. The changes to our consolidated assets, debt and of new transmission facilities in western Kansas. equity may be material.

Additionally, the EPA may develop new regulations, and Congress Recognition and Presentation of Other-Than-Temporary may pass new legislation, that impose additional requirements on Impairments facilities that store or dispose of non-hazardous fossil fuel com- In April 2009, FASB issued guidance that addresses the measure-bustion materials, including coal ash. If so, we may be required to ment and recognition of other-than-termporary impairments of change our current practices and incur additional capital expen- investments in debt securities. The guidance also provides for ditures and/or operating expenses to comply with these regulations. changes in the presentation and disclosure requirements surround-The degree to which we may need to produce renewable energy or ing other-than-temporary impairments of investments in debt and change our current practices related to the storage and disposal of equity securities. This guidance is effective for interim and annual non-hazardous materials and the timing of when equipment may reporting periods ending after June 15, 2009. We adopted this be required are uncertain. Both the timing and nature of required guidance effective April 1, 2009, without a material impact on our investments and actions depend on specific outcomes that result consolidated financial results.

from interpretation of new and existing regulation and legislation. Employers' Disclosures about Post-retirement Benefit Although we would expect to recover in the prices we charge our Plan Assets customers the costs that we incur to comply with environmental In December 2008, FASB issued guidance that requires enhanced regulations, we can provide no assurance that we will be able to fully disclosures about the plan assets of defined benefit pension and and timely do so. Failure to recover these associated costs could'have other post-retirement benefit plans. These disclosures include how a material adverse effect on our consolidated financial results.

investment allocation decisions are made, the factors pertinent.to New Accounting Pronouncements understanding investment policies and strategies, the fair value We prepare our consolidated financial statements in accordance of each major category of plan assets for pension plans and other with GAAP for the United States of America. To address current post-retirement benefit plans separately, the inputs and valuation issues in accounting, regulatory bodies have issued the following techniques used to measure the fair value of plan assets, the effect new accounting pronouncements that may affect our accounting of fair value measurements using significant unobservable inputs and/or disclosure. on changes in plan assets and significant concentrations of risk within plan assets. We adopted this'guidance effective December 15, FASB Codification 2009. See Notes 11 and 12 of the Notes*to Consolidated Financial In June 2009, the Financial Accounting Standards Board (FASB) Statements, "Employee Benefit Plans" and "Wolf Creek Employee approved its Accounting Standards Codification (Codification) as Benefit Plans."

the exclusive authoritative reference for U.S. GAAP to be applied Determining Whether Instruments Granted in Share-by nongovernmental entities. SEC rules and interpretive releases Based Payment Transactions Are Participating Securities are still considered authoritative GAAP for SEC registrants.

The Codification, which changes the referencing of accounting In June 2008, FASB issued guidance for determining whether standards, is effective for interim and annual reporting periods instruments granted in share-based payment transactions are ending after September 15, 2009. We adopted the Codification participating securities. The guidance provides that all outstanding effective July 1,2009, without a material impact on our consolidated unvested share-based payment awards that contain nonforfeitable financial results. rights to dividends or dividend equivalents are participating securities and shall be included in the computation of EPS pursuant Variable Interest Entities to the two-class method. This guidance is effective for fiscal years In June 2009, FASB issued guidance that amends the consolidation beginning after December 15, 2008, with retrospective application guidance for variable interest entities (VIEs). The amended guidance to prior periods. We adopted this guidance effective January 1, requires a qualitative assessment rather than a quantitative assessL 2009. See"-, Earnings Per Share" under Note 2 of the Notes to ment in determining the primary beneficiary of aVIE and significantly Condensed Consolidated Financial Statements,. "Summary of changes the consolidation criteria to be considered in determining Significant Accounting Policies."

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WESTAR ENERGY I .2009 ANNUAL REPORT Disclosures about'Derivative Instruments and ITEM 7A. QUANTITATIVE AND QUALITATIVE' DISCLOSURES Hedging Activities ABOUT MARKET RISK In March 2008, FASB issued' guidance that requires expanded Our fuel procurement and energy marketing activities 'ivolve disclosure to help investors better understand how derivative instru- primary market risk exposures',`including commodity price risk, ments and hedging activities affect an entity's fihancial 'positioh, credit risk"'atd interest'"ate risk.' Commbdity.piice risk is the financial performance and cash flows. The guidance amends and potential: adverse price impfct related to the purchase, or' sale of expands the disclosure requiremeents related to derivative instruments 6lectricity and ene'rgy-related products. Credit risk is the potential and hedging activities by requiring qualitative disclosure about adverse financial impact resulting from non'performance by a objectives and.,strategies for using deriyatives, quantitative disclo- counterparty of 'its contractual obligations. Interest rate risk is the sure about fair, value amounts of gains'and losses on derivative potential adverse finaricial'iiffpact related to 'changes in interest rates.

instruments and, disclosures about credit-:isk-related contingent features in 'derivative agreements. This guidance. is effective fof Market Price Risks ,;. .

fiscal years beginning after November 15, 2008. We adopted this We engage in physical and financial trading activities with the guidance effective January '1, 2009. See Note 4. of the Notes to gial of' managing our, coimimodify price risk, enhancing system Consolidated Financial Statements,"Finandial and Derivative Instru- reliability' and increasing profits. We procure and trade electridty, ments, Trading Securities, Energy Marketing and Risk Management." coal, natufal gas and other' energy-related products by utilizing Fair Value Measurements energy commodity contracts and a variety of financial instruments, In Septenriber 2006, FASB issued guidance that defines fair value, including forward and futures contracts, options and swaps.

establishes a'"framework for measuring fair value in GAAP and Prices in the wholesale power markets often are extremely volatile.

expands'disclosures aboutfair valtie'measurements. This guidance This volatility impacts our cost. of power purchased and our partici-is effective for fiscal years beginning after November 15, 2007, with pation in energy trades. If we were unable to genera-te an adequate the cumulative effect of the change in accounting principle recorded supply of electricity for our customers, we 'would attempt to as an adjustment to opening retained earnings. We adopted the purchase power from others. Such supplies are not always available.

guidance, for financial assets and liabilities recognized at fair value In addition, congestion on the, transmission system can limit our on a recurring basis effective January 1, 2008, and for non-financial ability to make purchases from, or sell into, the wholesale markets.

assets and liabilities recognized at fair value on a nonrecurring The inability to make wholesale purchases may require that we basis effective January 1, 2009. The adoption of this guidance did interrupt or curtail services to our customers. Net open positions not have a 'material impact on our consolidated financial results. exist, or are established, due tothe origination of new.transactions See Note '4 'of the Notes to 'Consolidated Financial Statements, and our assessment of, and response to, changing market conditions.

"Financial'and Derivative Instruments, Trading Securities, Energy To the extent we have net open positions, we are exposed, to Marketing and Risk Management." changes in market.prices: Additional factors that affect our com-In April 2009, FASB issued. guidance on two separate fair value modity price exposure are the quantity and availability of fuel used issues. Both of the releases, are effective for interim and annual for generation and.th.e quantity of electricity customers consume.

reporting periods ending after June 15, 2009, and we -adopted The availability and deliverability of generating fuel, including fossil both of them effective April 1, 2009. One of the releases provides and nuclear fuels, can vary significantly from one period to the next.

guidance for determining fair, value when the volume and level Our cu'stomers' electricityjusage could also vary from year to year of activity for an asset or liability have significantly decreased and based on the weather or other factors. The loss of revenues or for identifying transactions that are not orderly. We adopted. this higher costs associated with such conditions could be material and guidance without a material impact on our consolidated financial 'adverse to our consolidated financial results. Our risk of loss is results. The other release requires disclosures about the fair value partially mitigated, through the use of tariffs and contracts authorized of financial instruments in interim reporting periods as well as in by regulators !that allow us -to adjust*our prices in response to annual financial statements. See Note 4 of the Notes to Conshlidated changing costa. ' ' " '

Financial Statements,"Financial and Derivative Instruments, Trading Hedging Activity .,

Securities, Energy

. Marketing

• I and .,Risk *Management."'

In an effort to mitigate market risk associated with fuel procure-In September 2009, FASB issued guidan.ce permitting entities.,to ment and energy marketing, we may, use economic hedging measure the fair value of certain investments on the basis of the net arrangýinents to reduce our exposure to price changes. We may use asset value per share of the investments and requiring additional physical *'cntracts :and financial derivative 'instruments to hedge disclosure about such fair value measuiterriefits. This- guidance 'is the.price of a portion of out anticipated fossil fuel' needs or excess effective for interim and annual periods ending after December 15, generatiofi sales. At the'time 'weenter into these transactions, we 2009. We adopted the guidance effective October 1,' 2009,without are unable to determine .the hedge value until the agreements are a material impact on our consolidated'financial results. See Note 4 actually settled. Our future :xposure to changes in prices will be of the Notes to Conisolidated Finadrial Statements,"Financiil 'and dependent on the market'prices and.the extent and effectiveness of Derivative Instrumenits, Trading Securitie', Energy Marketing and any economic hedging arrangements into which we enter.

Risk'Management." ' " '

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WESTAR ENERGY 1 2009 ANNUAL REPORT Commodity Price Exposure. '. interest rate-risk.:We compute and presefitiriformation about the One way by which we manage and measure the market price risk sensitivity to changes in interest rates for variable rate debt and exposure. of.our trading portfolio is by using avariance/covariance current maturities of fixed rate debt by assuming a 100 basis point value-at-risk (VaR) model. In addition toVaR, we employ additional change in .the current interest rate applicable to such debt over the risk contrbl processes such.as stress testing, daily loss limits, credit remaining time the debt is outstanding.,,.

limits and position limits. We expect to use similar control processes We'had approximately $366.0 mnilliin 'of variable rate debt and in 2010. The use of VaR requires assumptions,, including the current maturities of fixed rate debt as of December 31) 2009.

selection~of a confidence level and a measure of volatility associated A 100 basis point change in interest rates applicable to this debt with potential losses and the estimated holding period. We express would impact income before income taxes on an annualized basis VaR as a potential, dollar loss based on a 95%, confidence level by approximately $3.6 million.' As of 'December 31, 2009, we had using a one-day holding period and a 20-day historical observation $121.9 milli6n of variable' rate bonds insured by bond insurers.

period. It is possible that actual.results may differ markedly from Prior to February 2008, interest rates payable 'under these bonds assumptions. AccordinglyVaR may not~accurately reflect our levels historically had been set. through periodic auctions. Conditions in of exposures. The energy trading and market-based wholesale the credit markets over the past two yedrs'have caused a dramatic portfolioVaR amounts for 2009 and 2008.were as.follows: reduction in' the demand for auction 'bonds, which has lead to 2009 2008 failures in these auctions. Thoe contractual pr6visions 'of these (InThousands) securities set forth an indexing formula method by which interest High . . . I '.$ 914 $1,660 will be paid.in the. event of anauction failure.. Depending on the Low............. ........ .  : ..... .... .. . . 43 .127 level of these reference indices; our interest costs may be.higher Average .......................................... 280 . 983 or lower than what they wopld have been had the securities been auctioned successfully. Additionally, should insurers of those bond We have considered a variety of risks and costs associated with the experience a decrease in their credit ratings, such event would most future contractual commintments included in our trading portfolios. likely increase our borrowing costs as well. Furthermore, a decline in These risks include valuation and marking qf~illiquid pricing loca- interest rates generally can serve to increas6, our pension and other tions and products, the financial condition-'f our counterparties and post-retirement benefit o..ligations and affect investment returns.

interest rate movement. See the credit risk and interest rate exposure discussions below for additional information. Also, there carl be no Security Price Risk assurance that the employment of VaR, credit practices or other risk We maintain trust funds, as required by the NRC andKansas state management tools we employ will eliminate possible losses." laws, to~fund certain costs of nuclear plant decommissioning. As of December 31,. 2009, investments in the nuclear decommissioning Credit Risk trust fund were allocated 61% to equity securities, 29% to debt We have exposure to counterparty default risk 'with our retail, securities, 3% to real estate securities, 5% to commodities and 2%

wholesale and energy marketing activities, including participation to cash and cash equivalents. The fair value of these funds was in RTOs. We maintain credit policies intended to reduce overall $112.3 million as of December 31, 2009, and $85.6 million as of credit -risk. We employ additional credif.risk"control mechanisms December 31, 2008. Changes in interest rates and/or other market that we believe are appropriate, such as requiring cotinterparties -chahiges resulting in a 10% detrease in the value of'the equity, to issue letters of credit or pa"rental guarantees' in 6ur' favor and debt and real estate securities, and commodities would have entering into master netting agreements with counterpaifties that fesulted in an $11.1 million 'decrease in the value of the nuclear allow for offsetting exposures:' decommissioning trust fund as Of December 31, 2009.

Certain of our derivative instruments contain collateral provisions We also, maintain a trust,to fund non-qualified retirement benefits.

subject to credit rating agencies'assessments of our senior unsecured As of December 31, 2009, these funds were. comprised of 66%

debt. If our senior unsecured debt ratings were to decrease or fall equity securities and 34%:debt securities. The fair value of. these below investment grade, then the counterparties to the derivative funds was $34.6.million as of December 31; 2009, and $26.3 million instruments, pursuant to such provisions, could require usfto po st ,.as of December 31, 2008..Changes in interest rates and/or other collateral on derivative instruments. The aggregate fair value ,of all market changes resulting in a' 10% decrease in the value of the derivative instruments with objective credit-risk-related contingent equity and debt securities:would have resulted in a $3.5 million features that were in a liability position as of December.31, 2009, decreise in the value of this trust as of December 31, 2009.

was $1.4 million, for which we had posted no collateral. If all credit-risk-related, contingent features underlying these agreements, had By maintaining diversified portfolios of securities, we seek to max-been triggered as .of December 31, 2009, we would have been mize the returns'.to fund the aforementioned obligatio.ns within required to provide to our counterparties;$0.1, million of additional acceptable risk tolerances; including interest rate risk. However, collateral after taking into consideration the. offsetting impact of debt and equity securities. in the. portfolios are exposed to price derivative assets and net accounts re.ceivable. . fluctuations in the .capital markets.' If the, value of. the, securities diminishes, the cost of funding'the~obligations rises. We actively Interest Rate Exposure monitor the portfolios by benchmarking the pefformance of the We have entered into numerous fixed and variable rate debt investments against relevant indices and by maintaining and obligations. For details, see Note 9 of the Notes to Consolidated periodically reviewing the asset allocation in relation to established Financial Statements, "Long-Term Debt." We manage our interest policy targets. Our exposure to security price risk related to the rate risk related to these debt obligations by'limiting Our variable nuclear decommissioning trust fund is, in part, mitigated because' interest rate exposure and utilizing various maturity dates. We we are currently allowed to recover decommissioning costs in the may also use swaps or other financial instruments to manage our prices we charge our customers.

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WESTAR ENERGY- I 2009 ANNUAL REPORT ITEM 8. FINANCIAL STATEMENTS AND -MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER' SUPPLEMENTARY DATA FINANCIAL REPORTING We are responsible for establishing and maintainin*g adequate, internal control over financial reporting. Internal control over TABLE OF CONTENTS financial reporting is defined in Rules 13a-15(f) promulgated PAGE under the Securities Exchange Act of 1934 as a process designed Management's Report on Internal Control by, or under the supervision of, the company's principal executive Over Financial Reporting... .... ...... 37 and principal financial officers and effected by th~e company's board 'ofdirectors, management and other personnel, to provide Reports'of Independent Rlegistered Public' reasonable assurance regarding the reliability'of financial reporting Accounting Firm ....... " ................. 38 and the preparation of financial statements, for elxtemal purposes in accordance with generally accepted accounting principles (GAAP)

Financial Statements: and includes those policies and procedures that:

,Westar Energy, Inc. and Subsidiaries:

• Pertain to the 'maintenance, of records, that'in reasonable detail accurately and fairly reflect the transactions and dispositions of Consolidated Balance Sheets, as of.

the assets of the company; December 31: 2009 and 2008 ............... '40

• Provide reasonable assurance that transactions' are recorded Consolidated Statements of Income as necessary to permit preparation of financial statements in for the years ended December 31', 2009, accordance' with GAAP,' and that receipts and expenditures of the 2008 and 2007........ ...... .............. 41 company ate being made only in accordance with authorizations Consolidated Statements of Comprehensive.', of management and directors of'the company; and

• Provide, reasonable. assurarce .'regarding prevention or timely Income for the years ended detection of unauthorized acquisition, use or disposition of the December 31, 2009, 2008 and 2007 ............. 42 company's assets that cduld have a material effect on the financial Consolidated Statements of Cash Flows. statements.

for the years ended December,31, 2009, 2008 ana 2007.......................... 43 Because of its inherent limitations, internal control over financial reporting may not prevent ordetect misstatements. Projections of Consolidated Statements of Shareholders' any evaluation of effectiveness to future periods are subject to the Equity for the years ended risk that controls may become inadequate because of changes in December 31, 2009, 2008 arid 2007 ....... ; 44 conditions, or that the degree of compliance with the policies or

.Notes to Consolidated Financial Statements .......... 45 procedures may deteriorate.

Financial SchedUles:' .. .' We assessed the effectiveness of our internal control over financial reporting as--of December 31, 2009. In making this assessment, Schedule II Valuation and Qualifying Accounts.. : .. .. .78 we used the criteria set forth by the. Committee of Sponsoring Organizations'of the Treadway Commission,in Internal Control-SCHEDULES OMITTED Integrated Framework.. Based on the'assessment, we believe that, as The following schedules are omitted because of the absence of the of December 31, 2009, our internal control over financial reporting conditions under which .they are required or the information is is effective based on those criteria. Our independent registered included on our consolidated financial statements and schedules public accounting firm.has issued an audit report on the company's presented: internal control over financial reporting:.

I, III, IV, andV. . '

37

WESTAR ENERGY I 2009 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders ofWestar Energy, Inc.

TopekaKansas We have audited the intemal control oxer financial reporting of assurance that transactions are recorded as necessary to permit Westar Energy, Inc. 'aid' subsidiaries (the' "Company") as of preparation of financial: statements in accordance with, generally December 31/ 2009, 'based on criteri'a established in Internal accepted accounting principles, and that receipts and expenditures Control-Integrated. Framework issued by the Committee lof of the company are being made only in accordance with authoriza-Sponsoring Organizations' of the :Treadway Commission. The tions of management and directors of the company; and (3)provide Company's management is responsible for maintaining effective reasonable assurance regarding prevention or timely detection of internal control over financial reporting a!nd for -its assessment of unauthorized acquisition, use, or disposition of the company's the effectiveness of internal control over finaficial reporting, assets that could have a material effect on the financial statements.

included:in the accompapying management's report on internal control over financial reporting. Our responsibility is to express an 'Because of the inherent limitatiohs of internal controi over financial opinion on the Company's internal control over financial reporting reporting. including the possibility, 6f collusion or improper based on our audit.. management override of controls, 'material misstatements due to error or fraud may not be prevented or detected on.-a timely We conducted our 'audit in accordance with the-standards of the basis. Also, projections of any evaluation of the effectiveness of Public Company Accounting, Oversight Board (United States). the internal control over financial reporting to future periods are Those standards require that we plan and perform the audit to subject to the risk that controls may become inAdeqtiate because obtain reasonable assurance about whether effective internal of changes in conditions, or that the degree of compliance with the control over financial reporting was maintained in all material policies or procedures may deteriorate.

respects. Ouraudit includeid obtaining an understanding of internal control over financial reporting, assessing the risk that a material In our opinion, the Company maintained, in all material respects, weakness exists, testing and evaluating the design and operating effective internal control over financial reporting as of December 31, effectiveness of internal control based on the assessed risk, and 2009, based on the criteria established in Internal Cqontrol-Integrated performing such other procedures as. we considered, necessary in Framework issued by the Committee of Sponsoring Organizations the circumstances. We believe, that our audit provides a reasonable of the Treadway Commission.' '

basis for our opinion. . . -

We have also audited, in accordance with the standards of the A company's internal control over financial reporting is a process Public Company Accounting Oversight Board (United States), the designed by, or under the supervision of, the company's principal consolidated financial statem'erits and'financial statement schedule executive and principal financial officers, or persons: performing as of and for the year ended December 31, 2009 .of the Company similar functions, and: effected'bV the compafly's board of directors, and our report dated February 25, 2010 expressed an unqualified management, and'other personnel to provide reasonable assurance opinion on those financial statements and finadial statement regarding the reliability, of financial reporting and the preparation schedule.

of financial statements for external purposes ýin accordance with generally accepted accounting principles. A company's internal control over financial reportirg'includes those policies and pro- /s/ Deloitte &Touche lUP .

cedures that (1) pertain to, the maintenance of records that,' in reasonable detail, accurately and fairly reflect the transactions and Kansas City, Missouri dispositions of the assets of the company; (2) provide reasonable February 25, 2010

- 38

WESTAR ENERGY I 2009 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Westar Energy, Inc.

Topeka, Kansas We have audited the accompanying consolidated balance sheets In our opinion, such consolidated financial statements present fairly, of Westar Energy, Inc. and subsidiaries (the "Company") as in all material respects, the financial position of Westar Energy, Inc.

of December 31, 2009 and 2008, and the related consolidated and subsidiaries as of December 31, 2009 and 2008, and the results statements of income, stockholders' equity, and cash flows for each of their operations and their cash flows for each of the three years of the three years in the period ended December 31, 2009. Our in the period ended December 31, 2009, in conformity with audits also included the financial statement schedule listed in the accounting principles generally accepted in the United States of Index at Item 15. These financial statements and financial statement America. Also, in our opinion, such financial statement schedule, schedule are the responsibility of the Company's management. Our when considered in relation to the basic consolidated financial responsibility is to express an opinion on the financial statements statements taken as a whole, presents fairly, in all material respects, and financial statement schedule based on our audits. the information set forth therein.

We conducted our audits in accordance with the standards of the We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Public Company Accounting Oversight Board (United States), the Those standards require that we plan and perform the audit to Company's internal control over financial reporting as of December obtain reasonable assurance about whether the financial statements 31, 2009, based on the criteria established in Internal Control-are free of material misstatement. An audit includes examining, Integrated Framework issued by the Committee' of Sponsoring on a test basis, evidence supporting the amounts and disclosures Organizations of the Treadway Commission and our report in the financial statements. An audit also includes assessing the dated February 25, 2010 expressed an unqualified opinion on the accounting principles used and significant estimates made by Company's internal control over financial reporting.

management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis Is/ Deloitte &Touche LLP for our opinion.

Kansas City, Missouri February 25, 2010 39-

WESTAR ENERGY I 2009 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2009 " 2008 (Dollars in Thousands)

ASSETS CURRENT ASSETS:

Cash and cash equivalents ...................................................... $ 3,860 $ 22,914 Accounts receivable, net of allowance for doubtful accounts of $5,231 and $4,810, respectively .................................................... 216,186 199,116 Inventories and supplies, net ........................................................... 193,831 204,297 Energy m arketing contracts ............................................................ 33,159 131,647 Taxes receivable ........................................................ .. ..... 45,200 36,462 D eferred tax assets ................................................................... 7,927 1,6,416 Prepaid expenses ....... .................................. .................... ........ 11,830 33,419 Regulatory assets ...................................................................... 97,220 . .. 79,783 O ther .............................................................................. 20,269 19,077 Total Current A ssets ............................................................ ..... 629,482 743,131 PROPERTY, PLANT AND EQUIPMENT, NET ..................................................... 5,771,740 5,533,521 OTHER ASSETS:

Regulatory assets ....................................................................... 758,538 872,487 Nuclear decom m issioning trust ......................................................... 112,268 85,555 Energy marketing contracts .......................................................... . . 10,653 25,601 O ther ............................................ .................................. 242,802 182,964 Total Other Assets ........................................................... 1,124,261 1,166,607 TOTA L ASSETS .......................................................................... $ 7,525,483 $ 7,443,259 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:

Current m aturities of long-term debt .................................................... $ 1,345 $ 146,366 Short-term debt ..................................................................... 242,760 174,900 A ccounts payable .................................................................... 112,211 195,683 A ccrued taxes ....................................................................... 46,931 44,008 V

Energy m arketing contracts ............................................................ 39,161 104,622 A ccrued interest ..................................................................... 76,955 42,142 Regulatory liabilities .................................................................. 39,745 31,123 O th er .............................................................................. 123,370 133,565 Total Current Liabilities ............................................................ 682,478 872,409 LONG-TERM LIABILITIES:

Long-term debt, net ...................................................................... 2,490,734 2,192,538 Obligation under capital leases....................................................... 109,300 117,909 Deferred incom e taxes ..............................................  : .................... 964,461 1,004,920 Unamortized investment tax credits.................................................... 127,777 59,386 Deferred gain from sale-leaseback ......................................................... 108,532 114,027 Accrued employee benefits .......................................................... 433,561 526,177 A sset retirem ent obligations .............................................................. 119,519 95,083 Energy m arketing contracts ............................................................... 210 2,262 Regulatory liabilities ..................................................................... 100,963 91,934 O th er ................................................................................. 117,720 155,612 Total Long-Term Liabilities .......................................................... 4,572,777 4,359,848 COMMITMENTS AND CONTINGENCIES (See Notes 13 and 15)

TEM PORARY EQUITY (See Note 11) ......................................................... 3,443 3,422 SHAREHOLDERS' EQUITY:

Cumulative preferred stock, par value $100 per share; authorized 600,000 shares; issued and outstanding 214,363 shares ................................................... 21,436 21,436 Common stock, par value $5 per share; authorized 150,000,000 shares; issued and outstanding 109,072,000 shares and 1.08,311,135 shares, respectively ............. 545,360 541,556 Paid-in capital ....................................................................... 1,339,790 1,326,391.

Retained earnings............................................................... 360,199 318,197 Total Shareholders'Equity .......................................................... 2,266,785 2,207,580 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................................. S 7,525,483 $ 7,443,259

- 40 The accompanying notes are an integralpart of these consolidated financialstatements.

WESTAR ENERGY 1 2009 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME .

Year Ended December 31, 2009 2008 2007 (Dollars in Thousands, Except Per Share Amounts)

REVENUES .................................................... S 1,858,231 $ 1,838,996 $ 1,726,834 OPERATING EXPENSES:

Fuel and purchased pow er .......................... ............ 534,864 694,348 .544,421 O perating and m aintenance ....................................... 516,930 471,838 473,525 Depreciation and am ortization ................................... 251,534 203,738 192,910 Selling, general and adm inistrative ............................... 199,961 .. 184,427 178,587 Total O perating Expenses ..................................... 1,503,289 1,554,351- 1,389,443 INCOM E FROM OPERATIONS ......................................... 354,942 284,645 337,391 OTHER INCOME (EXPENSE):

Investm ent earnings (losses) ....................................... 12,658 (10,453) 6,031 Other income ........................... ... .............. 7,128 .29,658 6,726 Other expense ................................................. (17,188) (15,324) (14,072)

Total O ther Incom e (Expense) ................................. 2,598 3,881 (1,315)

In terest expen se .................................................. 157;360 106,450 103,883 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ......... 200,180 182,076 232,193 Incom e tax expense ................  ; .............................. 58,850 3,936 63,839 INCOME FROM CONTINUING OPERATIONS ............................. 141,330 178,140 168,354 Results of discontinued operations, net of tax .......................... 33,745 - -

NET INCO ME ..................................................... 175,075 178,140 168,354 Preferred dividends ............................................... 970 970 970 NET INCOME ATTRIBUTABLE TO COMMON STOCK ....................... $ 174,105 $ 177,170 $ 167,384 BASIC AND DILUTED EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING (see Note 2):

Basic earnings available from continuing operations .................. $ 1.28 $ 1.69 $ 1.83 Discontinued operations, net of tax ................................ 0.30 - -

Basic earnings per com mon share ................................. $ 1.58 $ 1.69 $ 1.83 Diluted earnings available from continuing operations ............... $ 1.28 $ 1.69 $ 1.83 Discontinued operations, net of tax ................................. 0.30 -

Diluted earnings per common share ............................... $ 1.58 $ 1:69 $ 1.83 Average equivalent common shares outstanding ....................... 109,647,689 103,958,414 90,675,511 DIVIDENDS DECLARED PER COMMON SHARE ---------------------- S 1.20 $ 1.16 $ 1.08 41-The accompanying notes are an.integralpart of these consolidatedfinancial staternents.

WESTAR ENERGY I 2009 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2009 2008 2007 (Dollars in Thousands)

NET INCO ME ........... .......................  :.................. $ 175,075 $ 178,140 $ 168,354' OTHER COMPREHENSIVE INCOME (LOSS):

Unrealized holding gain (loss) on marketable .

securities arising during the period ....... ..................... . - 51 Minimum pension liability adjustment ........ ....................

Other comprehensive income, before tax... 7.................... -- .51 Income tax expense related to items of other comprehensive income ....-

Other comprehensive income, net of tax ........................ -- 51 COMPREHENSIVE INCOME .......................................... $ 175,075 $ 178,140 $ 168,405

- 42 The accompanying notes are an integralpart of these consolidatedfinancial statements.

WESTAR ENERGY 1 2009 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2009 2008 2007 (Dollars in Thousands)

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:

N et in com e ......................................................... $ 175,075 $ 178,140 $ 168,354 Discontinued operations, net of tax...................................... (33,745)

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and am ortization ...................................... 251,534 203,738 192,910 Am ortization of nuclear fuel ........................................ 16,161 14,463 16,711 Amortization of deferred gain from sale-leaseback ...................... (5,495) (5,495) (5,495)

Amortization of corporate-owned life insurance ........................ 22,116 18,920 13,693 N on-cash com pensation ........................................... 5,133 4,696 5,800 Net changes in energy marketing assets and liabilities ................... 8,972 (7,018) 7,647 Accrued liability to certain former officers ............................. 2,296 (1,449) 931 Gain on sale of utility plant and property .............................. (1,053)

Net deferred income taxes and credits ................................ 46,447 35,261 14,084 Stock-based compensation excess tax benefits .......................... (448) (561) (1,058)

Allowance for equity funds used during construction .................... (5,031) (18,284) (4,346)

Changes in working capital items, net of acquisitions and dispositions:

A ccounts receivable ........ ....................................... (17,159) (3,331) (15,926)

Inventories and supplies.. . ........................................ 10,466 (11,764) (44,603)

Prepaid expenses and other ......................................... (10,635) (52,615) (72,212)

A ccounts payable ................................................. (15,115) (73,971) 59,488 A ccrued taxes ..................................................... 30,493 27,938 (50,027)

O ther current liabilities ............................................. 13,572 (5,732) (50,179)

Changes in other assets ........................ ...................... 73,784 29,389 (54,668)

Changes in other liabilities ............................................. (89,516) (56,382) 65,712 Cash flows from operating activities ............................... 478,905 274,890 246,816 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:

Additions to property, plant and equipment ............................... (555,637) (918,958) (743,810)

Investment in corporate-owned life insurance ............................ (17,724) (18,720) (18,793)

'Purchase of securities within the nuclear decommissioning trust fund ......... (64,016) (210,599) (240,067)

Sale of securities within the nuclear decommissioning trust fund ............. 61,096 221,613 238,414 Proceeds from investment in corporate-owned life insurance ................ 1,748 27,320 544 Proceeds from sale of plant and property ................................. - 4,295 -

O ther investing activities .............................................. 2,920 (11,388)

Investment in affiliated company ........................................ (818) - -

Proceeds from other investm ents ..............................  ! .......... -- 1,653 Cash flows used in investing activities .............................. (572,431) (906,437) (762,059)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:

Short-term debt, net .................................................. 67,860 (5,100) 20,000 Proceeds from long-term debt .......................................... 347,507 544,715 322,284 Retirem ents of long-term debt ......................................... (196,821) (101,311) (25)

Repaym ent of capital leases ......................... ..................... (10,190) (9,820) (5,729)

Borrowings against cash surrender value of corporate-owned life insurance .... 10,299 64,255 61,472 Repayment of borrowings against cash surrender value of corporate-owned life insurance ..... : .............................. (3,531) (28,634) (2,209)

Stock-based compensation excess tax benefits ............................ 448 561 1,058 Issuance of com m on stock, net ......................................... 4,587 293,621 195,420 C ash dividends paid .................................................. (122,937) (109,579) (89,471)

Cash flows from financing activities ............................... 97,222 648,708 502,800 CASH FLOWS USED IN INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS:

Payment of settlement to former subsidiary ............................... (22,750) - -

Cash flows used in investing activities of discontinued operations ...... (22,750) - -

NET (DECREASE) INCREASE INCASH AND CASH EQUIVALENTS ................... (19,054) 17,161 (12,443)

CASH AND CASH EQUIVALENTS:

Beginning of period ................................................... 22,914 5,753 18,196 E n d of p eriod ........................................................ $ 3,860 $ 22,914 $ 5,753 43-The accompanying notes are an integralpart of these consolidatedfinancialstatements.

WESTAR ENERGY 1 2009 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Accumulated Cumulative other Total preferred Common Paid-in Retained comprehensive Shareholders' stock stock capital earnings (loss) income Equity (Dollars inThousands)

Balance at December 31, 2006 ................. $ 21,436 $ 436,974 $ 916,605 $ 185,779 $ -01 $ 1,560,895 N et incom e ................................ - - - 168,354 - 168,354 Issuance of common stock, net ................ - 40,342 165,623 " - 205,965 Preferred dividends, net of retirements ........ - - - (970) -- (970)

Dividends on common stock .................. - -( . 99,153) - (99,153)

Reclass to Temporary Equity .............. . -- -- 1,447 I- - 1,447 Amortization of restricted stock ............... -- -- 5,116 '. -- 5,116 Stock compensation and tax benefit ............ - - (3,692) -- (3,692)

Unrealized gain on marketable securities ....... - '- 51 *51 I

Adjustment to Retained Earnings -

Uncertain Income Tax Positions ............. - - - 10,467 - 10,467 Balance at December 31, 2007 ................. 21,436 477,316 1,085,099 264,477 152 1,848,480 N et incom e .............. ................ . 178,140,, : - . 178,140 Issuance of common stock, net ................ -- 64,240. 239,316 - .. - , 303,556 Preferred dividends, net of retirements .......... -- - -- (970) -- (970)

Dividends on common stock .................. (123,107) ,(123,107)

Reclass$to Temporary Equity .................. -- -- 1,802 -. - 1,802 Amortization of restricted stock ............... -- -- 3,941 " - 3,941 Stock compensation and tax benefit ............ -- -- (3,767) - - (3,767)

Adjustment to Retained Earnings -'

Pension and Other Post-retirement Benefit Plans ............................ - -- -- (495) - (495)

Adjustment to Retained Earnings -

FairValue O ption ......................... - - - 152 (152)

Balance at December 31, 2008 ................. 21,436 541,556 1,326,391 318,197 - 2,207,580 Net income ........................... - - - 175,075.. - 175,075 Issuance of common stock, net ................ -- 3,804 10,569 ,- . - 14,373 Preferred dividends, net of retirements ......... -.- . - (970) - '(970)

Dividends on common stock .................. -- -- -- (132,103) -- (132,103)

Reclass to Temporary Equity .................. -- -- (20) - -- (20)

Amortization of restricted stock ............... -- -- 4,524 - - 4,524 Stock compensation and tax benefit ......... - - (1,674) . - (1,674)

Balance at December 31, 2009 ................. $ 21,436 S 545,360 $ 1,339,790 $ 360,199 $ - $ 2,266,785

-- 44 The accompanying notes are an integralpart of these consolidatedfinancial statements.

WESTAR ENERGY 1 2009 ANNUAL REPORT WESTAR ENERGY, INC. Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in customer prices.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Regulatory liabilities represent probable future reductions in

1. DESCRIPTION OF BUSINESS revenue or refunds to customers through the price setting process.

Regulatory assets and liabilities reflected on our consolidated We.are the largest electric utility in Kansas. Unless the context balance sheets are as follows.

otherwise indicates, all references in this Annual Report on Form 10-K to "the company,'"we,""us,""our" and. similar words are to As of December 31, 2009 2008 Westar Energy, Inc. and. its consolidated subsidiaries. The term (InThousands)

"Westar, Energy"refers, to Westar Energy, Inc., a Kansas corporation Regulatory Assets:

incorporated in 1924, alone and not together with its consolidated Deferred employee benefit costs .................... $369,877 $440,061 subsidiaries. Amounts due from customers for future income taxes, net ............................. 183,667 193,997 We provide electric generation; transmission and distribution services Depreciation. 82,541 85,104 to approximately 685,000 customers in Kansas. Westar- Energy Debt reacquisition costs .................... ...... 79,342 87,321 Ice storm costs ................................. 48,998 68,109 provides these services, in central and northeastern Kansas, Asset retirement obligations ....................... 20,719 21,542 including the cities of Topeka, Lawrence, Manhattan, Salina and Wolf Creek outage ............ ............. 19,438 12,442 Hutchinson. Kansas Gas and Electric Company (KGE), Westar Disallowed plant costs .......................... 16,462 16,560 Energy's wholly-owned subsidiary, provides these services in Retail energy cost adjustment ...................... 13,298 17,991 south-central and southeastern K~ansas, including the city of Other regulatory assets: .................. ....... 21,416 9,143

'Wichita. KGE owns a 47% interest in the Wolf Creek Generating Total regulatory assets ....................... $855,758 $952,270 Station (Wolf Creek), a nuclear power plant located near Burlington, Regulatory Liabilities:

Kansas. Both Westar Energy and KGE'conduct. business using the Removal costs............................. $ 68,078 $ 50,051 name Westar Energy. Our corporate headquarters is located at Retail energy cost adjustment ...................... 27,488 456 818 South Kansas Avenue, Topeka, Kansas 66612. Nuclear decommissioning ........................ 16,658 15,054 Fuel supply and electricity sale contracts .............. 6,001 36,331 Ad valorem tax ................................ 5,604 7,347

2.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES Kansas tax credits . .............................. 5,351 -

State Line purchased power ....................... 2,493 3,379 Principles of Consolidation Other regulatory liabilities........................ 9,035 10,439 We prepare our consolidated financial statements in accordance Total regulatory liabilities ........................ $140,708 $123,057 with GAAP for the United States of America. Our consolidated financial statements include all operating divisions and majority Below we summarize the-nature and period of recovery for each of owned subsidiaries,. reported as a single operating segment,: for which we maintain controlling interests. Undivided interests in the regulatory assets listed in the table above.

jointly-owned generation facilities are included on a proportionate I Deferred employee benefit costs: Includes $359.0 million for basis. Intercompany accounts and transactions have been eliminated pension and post-retirement benefit obligations; $10.1 million in consolidation. In our opinion, all adjustments, consisting only of for the difference between pension and post-retirement benefits normal recurring adjustments considered necessary for a fair preseni- expense and the amount of.such expense recognized in setting tation of the consolidated financial statements, have been included. our prices; and $0.8 million for, post-retirement expenses in excess of'amounts paid in 2009. During 2010, we will amortize Use of Management's Estimates to expense approximately $29.0 million of the benefit obligation.

When we prepare our consolidated financial statements, we are The post-retirement expenses are recovered over a period of five required to make estimates and assumptions that affect the reported years. We do hot earfn a return on this asset.

amounts of assets, liabilities, revenues and expenses, and related i Amounts due from customers for future income taxes, net: In disclosure of contingent assets and liabilities at.the date .of our accordance with various orders, we have reduced our prices to consolidated financial statements and the reported amounts of reflect the tax benefits associated with certain tax deductions, revenues and expenses during the reporting period. We e-Taluate thereby passing 'on these 'benefits to customers at the time our estimates on an on-going basis, including those related to bad We receive them. We believe it is probable that the net future debts, inventories, valuation of commodity contracts, depreciation, increases in income taxes payable will be recovered from unbilled 'revenue, investments, valuation of our energy marketing customers when these. temporary tax benefits reverse in future portfolio, intangible assets, forecasted fuel costs included in, our periods. As a result, we have recorded a $220.8 million regulatory retail energy cost adjustment (RECA) billed to cuistomers, income asset, on which we do not earn a return. Partially offsetting this taxes, pension and other post-retirement benefits, our asset retire- asset is a $371 million regulatory liability for our obligation to ment obligations (AROs) including the decommissioning of.Wolf customers for taxes recovered in earlier periods when corporate Creek, environmental issues, contingencies and litigation. Actual tax rates were higher than the current tax rates. This benefit will results may differ from those estimates under different assumptions be returned to custorners-as these temporary differences reverse or conditions. in future periods. The tax-related regulatory assets and liabilities as well as unamortized investment tax credits are also temporary Regulatory Accounting differences for which deferred income taxes have been provided.

We apply accounting standards that recognize the economic effects These items are measured by the expected cash flows to be of rate regulation. Accordingly, we have recorded regulatory assets received or settled in future prices. '

and liabilities when required by a regulatory order or based on m Depreciation: Represents the difference between regulatory regulatory precedent. depreciation expense and.: depreciation expense we record for financial reporting purposes. We earn a return on this asset and recover the difference over. the life of the related plant.

45-

WESTAR ENERGY I 2009 ANNUAL REPORT

" Debt reacquisition costs: Includes costs incurred to reacquire and Under the RECA, fuel supply contract market gains accrue to the refinance debt. These costs are amortized over the term of the benefit of our customers.

new debt. We do not earn a return on this asset. " Ad valorem tax: Represents amounts collected'in'our prices in

" Ice storm costs: We accumulated and deferred for future recovery excess of actual costs incurred for .property taxes. We will refund costs related to restoring our electric transmission and distribution to customers this excess recovery over a one-year period.

systems from damage sustained during unusually damaging " Kansas tax credits: Represents Kansas tax credits on investments storms. We recover these costs over periods ranging from three in utility plant. Amounts dre credited to customers over the lives to five years and earn a return on this asset. of the utility'plaht giving rise to the tax credits.

" Asset retirement obligations: Represents amounts associated I State Line purchased power: 'Represents amountsreceived from with our AROs as discussed in Note 14,'Asset Retirement Obliga- customers in excess of costs incurred under Westar Energy's tions."We recover these amounts over the life of the related plant. purchased power agreement with Weitar Generating, Ihc., a We do not earn a return on this asset. wholly-owned subsidiary.

" Wolf Creek outage: Wolf Creek incurs a refueling and main- m Other regulatory, liabilities: Includes various regulatory liabilities tenance outage approximately every 18 months. The expenses that individually are relatively small in relation to the total associated with these maintenance and refueling outages are regulatory liability balance. Other regulatory. liabilities will be deferred and amortized over the period between such planned credited over various periods, most of which range from one to outages. We do not earn a return on this asset. five years.

" Disallowed plant costs: In 1985, the Kansas CorporationCom-mission (KCC) disallowed certain costs associated with the Cash and Cash Equivalents original construction of Wolf Creek. In 1987, the KCC authorized We consider investments that are highly liquid and have maturities KGE to recover these costs in prices over the useful life of Wolf of three months or less when purchased to be cash equivalents.

Creek. We do not earn a return on this asset.

Inventories and Supplies

" Retail energy, cost adjustment: We are allowed to adjust our retail prices to reflect changes in the cost of fuel and purchased We state inventories and supplies at average cost.

power needed to serve our customers. This item represents the Property, Plant and Equipment actual cost of fuel consumed in producing electricity and the cost of purchased power in excess of the amounts we have collected We record the value of'property, plant and equipment at cost. For from customers. We expect to recover in our prices this shortfall plant, cost includes contracted services, direct labor and materials, over a one-year period. For the reporting period, we had two indirect charges for engineering and supervision and an allowance retail jurisdictions, each of which had a unique RECA and a for funds .used during construction (AFUDC). AFUDC represents separate cost of fuel. This resulted in us simultaneously reporting the allowed cost of capital used to finance utility construction both a regulatory asset and a regulatory liability for this item. We activity. We compute AFUDC by applying a composite rate to qualified construction work in progress. We credit to other income do not earn a return on this asset.

(for equity funds) and interest expense (for borrowed, funds)

" Other regulatory assets: Includes various regulatory assets that the amount of AFUDC capitalized as construction cost on the individually are small in relation to the total regulatory asset accompanying consolidated statements of income as follows:

balance. Other regulatory assets have various recovery periods, most of which range from three to five years. Year Ended December 31, " 2009 2008 2007 (Dollars in Thousands)

Below We summarize the nature and period of amortizgtion for Borrowed funds ........................ $ 4,857 $ 20,536 $ 13,090 each of the regulatory liabilities listed in the table above.

Equity funds.."."." 5,031 18,284 4,346

" Removal costs: Represents amounts collected, but not yet spent, Total. . $ 9,888 $ 38,820- $ 17,436 to dispose of plant assets that do not represent legal retirement obligations. This liability will be discharged as removal costs Average AFUDC Rates ................... 4.2% 6.4% 6.6%

are incurred.

" Retail energy cost adjustment: We are allowed to adjust our retail We charge maintenance costs and replacement of minor items prices to reflect changes in the cost of fuel and purchased power of property to expense as incurred, except for maintenance costs needed to serve our customers. We bill customers based on our incurred for our refueling 6utagds at Wolf' Creek. As authorized estimated costs. This item represents the amount we collected by' regulators, we defer and amortize to expense ratably over an from customers that was in excess of our actual cost of fuel 18-month operating cycle the incremental maintenance costs and purchased power. We will refund to customers this excess incurred for planned' refueling outages. Normally, when a' unit recovery over a one-year period. For the reporting period, we had of depreciable property is retired, we charge to accumula ed two retail jurisdictions, each of which had a unique RECA and a depreciation the original cost less salvage value.

separate cost of fuel. This resulted in us simultaneously reporting Depreciation' both a regulatory asset and a regulatory liability for this item.

" Nuclear decommissioning: We have a legal obligation to decom-We depreciate utility plant using a straight-line method. These rates mission Wolf Creek at the end of its useful life.This item represents are based on an average annual composite basis using group'rates the difference between the fair value of our ARO and the fair that approximated 3.0% in 2009, 2.6% in 2008 and 2.7% in 2007 value of the assets held in a decommissioning trust. See Note 5, Depreciable lives of property, plant and equipment are as follows.

"Financial Investments and Trading Securities" and Note 14, Years "Asset Retirement Obligations," for information regarding our

.nuclear decommissioning trust fund and our ARO. Fossil fuel generating facilities .................... ................ 7 to.69 Nuclear fuel generating facility ........'......... 40 to 60

" Fuel supply and electricity sale, contracts: We use fair value Wind generating facilities ..................... 19'to.20 accounting for some of our fuel supply and electricity sale Transm ission facilities ........................................... 15 to 65 contracts. This represents the non-cash net gain position on fuel Distribution facilities ............................................ 21 to 70 supply and electricity sale contracts that are recorded at fair value. Other . . .. . .. . .. . . .. . .. . . .. .. . . .. . .. . .. . .. . .. . . 5 to 35

- 46

WESTAR ENERGY I 2009 ANNUAL REPORT Nuclear Fuel liabilities for the future tax-consequences attributable to temporary We record as property, plant and equipment our share of the cost differences between the financialstatement carrying amounts and of nuclear fuel used in the process of refinement, conversion, the tax basis of existing assets and liabilities. We recognize the enrichment and fabrication. We reflect this at original cost and future tax benefits to' the extent that realization of such benefi't is amortize such amounts to fuel expense based on the quantity of more likely than not. We amortize deferred investment tax credits heat consumed dfring the generation of electricity, as measured over the lives of the related properties as required by tax laws and in millions of British thermal units (MMBtu). The accumulated regulatory practices. We recognize production tax credits in the year amortization of nuclear fuel in the reactor was $22.9 million as that electricity is generated to the extent that realization of such of December 31, 2009, and $29.3 million as of December 31, 2008. benefits-is more likely than not.

Spent nuclear fuel charged to fuel and purchased power expense We record deferred tax assets for carryforwards of capital losses, was $20.1 million in 2009, $18.3 million in 2008 and $21.7 million operating losses' and tax credits. However, when we believe based in 2007. on available evidence that we do not, or will not have sufficient Cash Surrender Value of Life Insurance future capital gain income or taxable income in the appropriate taxing jurisdiction to realize the entire benefit during the applicable We recorded on our consolidated balance sheets in other long-carryforward period, we record a valuation allowance against the term assets the following amounts related to corporate-owned life deferred tax asset. We report the effect of a change in the valuation insurance policies.

allowance inthe current period tax expense.

As of December 31, 2009 2008 The application of income tax law is complex. Laws and regulations (InThousands) in this area are voluminous and often ambiguous. Accordingly, Cash surrender 4alue of policies .......

" ....... .. $1,209,304 '$1,156,457 we must make judgments regarding income tax exposures.

Borrowings against policies ....................... (1,073,544) (1,066,776) Interpretations of and guidance surrounding income tax laws and Corporate-owned life insurance, net ........... $ 135,760 $ 89,681 regulations change over time. As'a restilt, changes in our judgments can materially affect amounts we.recognize in our consolidated We record as income increases in cash surrender value and death financial statements. See Note 10, "Taxes," for additional detail on benefits. We offset against policy income the interest expense that our accounting for income takes. -

we incur on policy loans. Income from death benefits is highly variable from period to period. Death benefits were approximately Sales Taxes

$3.8 million in 2009, $9.5 million in 2008 and $2.4 million in 2007 We account for the collection and remittance of sales tax on a net basis. As a result, we do not reflect them in our consolidated Revenue Recognition - Energy Sales statements of income.

We record revenue at the time we deliver electricity to customers. We Earnings Per Share determine the amounts delivered to individual customers through syst.ematic monthly readings of customer meters. At the end of each Effective January 1, 2009, we adopted guidance issued by the month, we estimate. how. much electricity we have delivered since Financial Accounting Standards Board (FASB) for determining the prior meter reading and record the corresponding unbilled revenue. whether instruments granted in share-based payment transactions are participating securities. According to the: provisions of this The accuracy of our unbilled revenue estimate is affected by factors guidance, we have participating securities related to unvested including fluctuations in energy demand, weather, line losses and restricted share units (RSUs) with nonforfeitable rights to dividend changes in the composition of customer classes. We had estimated equivalents that receive dividends as declared on an equal basis unbilled revenue of $56.6 million as of December'31, 2009, and with common shares.As a result, we apply the two-class method of

$47.7 million as of December 31', 2008.The increases reflect our price computing basic and diluted earnings per share (EPS). We adopted increases as discussed in Note 3,"R'ate Matters and Regulation." this guidance with retrospective application to prior periods which resulted in a decrease in basic and diluted EPS for the year ended We account for energy marketing derivative contracts under the December 31, 2008, from $1.70 per share as previously reported in fair value method of accounting. Under this method, we recognize our 2008 Form 10-K to $1.69 per share as reported in this Form 10-K.

changes in the portfolio value as gains or losses in the period of Basic EPS for the year ended December 31, 2007, also decreased change. With the exception of certain fuel supply and electricity from $1.85 per share as prevuiously reported in our 2007 Form' 10-K sale contracts, which we record as regulatory assets or regulatory liabilities, we include the net change in fair value ih revenues on to $1.83 per share as reported in this Form 10-K.

our consolidated statements of income. We record the resulting Under the two-class method, we reduce net income attributable to unrealized gains and losses as, energy marketing long-term or common stock by the amount of dividends declared in the current short-term assets and liabilities on our consolidated.balance sheets period. We allocate the, remaining earnings to common stock and as appropriate. We use quoted market prices to value our energy RSUs to the extent that each security may share in earnings as if all marketing derivative contracts when such data are available. When of the earnings for the period had been distributed. We determine market prices are not readily available or determinable, we use the total earnings allocated to each security by adding together alternative approaches, such as model pricing. The prices .we use the amount allocated for dividends and the amount allocated for a to value these transactions reflect our best estimate of the fair value participation feature. To compute basic EPS, we divide the earnings of these contracts. Results actually achieved from these activities allocated to common stock by the weighted average number of could vary materially from intended results and could affect our common shares outstanding. Diluted EPS includes the effect of consolidated financial results. potential issuances of common shares resulting from the exercise of all outstanding stock options issued pursuant to the terms of our Income Taxes stock-based compensations plans. We compute the dilutive effect We use the asset and liability method of accounting' for income of shares issuable under our stock-based compensation plans using taxes. Under this method, we recognize deferred'tax assets and the treasury stock method. ' '

47

WESTAR ENERGY I 2009 ANNUAL REPORT The following table reconciles our basic and diluted EPS from changes the consolidation criteria to be considered in determining income from continuing operations. the primary beneficiary. Pursuant to the amended guidance, there is no exclusion, or"grandfathering," of V1Es that were not consoli-Year Ended December 31, 2009 .2008 2007 dated under prior guidance. This amended guidance is effective for (Dollars InThousands, Except Per Share Amounts) annual reporting periods beginning after November 15, 2009. We Income from continuing operations .. $, 141,330 $ 178,140 $. 168,354 adopted the guidance effective January 1, 2010, and, as a result, Less: Preferred dividends ...... 970 970 .970 expect to consolidate VIEs that were previously not. consolidated.

Income from continuing operations allocated to RSUs". .. . 541 .1,346 1863 The VIEs we expect to. consolidate include certain trusts that hold assets we lease. Consolidation of these-VIEs will eliminate the lease-Income from continuing operations accounting we now report forthese assets and result in change* in attributable to common stock.... $ 139,819 $, 175,824 $ 165,521 our consolidated assets, debt and equity: Any changes in net income Weighted average equivalent common that occur as a result of the elimination of lease accounting and shares outstanding - basic ..... 109,647,689 103,958,414 90,675,511 consolidation ofVIEs will be offset through the recognition of either Effect of dilutive securities:

728 952 a regulatory asset or liability. Consolidation of these VIEs will also Employee stock options ...... . 481 result in changes .to our consolidated statements of cash flows Weighted average equivalent common related to each VIE's cash activity. We continue to evaluate the shares outstanding - diluted~i. . .- 109;648,170 103,959,142 90,676,463 impact that consolidating these VIEs will have on our consolidated Earnings from continuing operations financial results. The changes to our consolidated assets, debt and per common share, basic and equity maybe material.

diluted ..................... . 1.28 $ 1.69 $ 1.83 We did not have any antidilutive sharesfor the year ended December 31, 2009. Recognition and Presentation of Other-Than-Temporary For the years ended December 31, 2008, and December 31, 2007 potentially Impairments dilutive shares not included in the denominator because they are antidilutive In April 2009, FASB issued guidance that addresses the measure-totaled 21,300 shares and 74,890 shares, respjectively. ment -and recognition of other-than-temporary impairments .of investments in debt .securities. The guidance also provides for Supplemental Cash Flow Information changes in the presentation'and disclosure requirements surround-Year Ended December 31, 2009 2008 2007 ing other-than-temporary impairments of investments in debt and (in Thousands) ecquity securities. This guidance is effedtive for interim and innual reporting periods ending after June 15, 2009. We adopted this CASH PAID FOR (RECEIVED FROM):

Interest oh financing activities, guidance effective April 1, 2009, without a material impact on our net of amount capitalized .............. $144,964 $102,865 $ 84;291 consolidated financial results.

Income taxes, net of refunds ............. (7,870) (34,905) 74,970 NON-CASH INVESTING TRANSACTIONS: Employers' Disclosures about Post-retirement Benefit Jeffrey Energy Center Plan Assets 8% leasehold interest ............ -- - 118,538 In December 2008, FASB issued guidance that requires enhanced Other property, plant and disclosures about the plan assets of defined benefi:'pension and equipment additions .................. 21,614 106,219 100,039 NON-CASH FINANCING TRANSACTIONS:

other post-retirement benefit pfans. These disclosures include how Issuance of common stock for reinvested . .

investment allocation decisions are made, the factors pertinent to dividends and compensation plans ....... 12,168 11,263 10,553 understanding investment policies and strategies, the fair. value of Capital lease for Jeffrey Energy Center ,. each major category. of plan assets for pension plans and other 8% leasehold interest ...... .......... . - - 118,538 post-retirement benefit plans separately, the inputs and valuation Other assets acquired through capital leases. 2,818 4,583 3,228 techniques used to measure the fair'value of plan assets, the effect of fair value measurements using significant unobservable inputs New Accounting Pronouncements on changes in plan assets and significant concentrations of risk We prepare our consolidated financial statements in accordance within plan assets: We adoptedthis guidance effective December 15, with GAAP for the United States of America. To address current 2009. See Notes 11 and 12, "Employee Benefit Plans" and "Wolf issues in accunting, regulatorybodies have issued the following Creek Employee Benefit Plans"7 new accounting pronouncements that may affect our accounting and/or disclosure. Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities FASB Codification In June 2008, FASB .issued guidance for determining whether In June 2009, FASB approved its Accounting Standards Codification instruments granted in share-based- payment transactions are (Codification) as the exclusive authoritative reference for U.S. participating securities. -The guidance, provides that all outstanding GAAP to be applied by nongovernmental entities. Securities unvested share-based payment awards that contain nonforfeitable and Exchange Commission (SEC) rules and interpretive releases rights to dividends or dividend equivalents are participating are still considered authoritative GAAP for SEC registrants. securities and shall be included in the computation of EPS pursuant The Codification, which changes the referencing of accounting to the two-class method. This guidance is effective for fiscal years standards, is effective for interim and annual reporting periods beginning after December 15, 2008, with retrospective application ending .after September 15, 2009. We adopted the Codification to prior periods. We adopted this guidance effective January 1, 2009.

effective July 1, 2009,,without a material impact on our consolidated See".- Earnings Per Share" above.

financial results.

Disclosures about Derivative Instruments and Variable Interest Entities Hedging Activities

• In June 2009, FASB issuedguidance that amends the consolidation In March 2008, FAS.B issued! guidance that requires expanded guidance for variable interest entities (VIEs).The amended guidance disclosure to help investors bett&e understand how derivative instru-requires a qualitative assessment rather than a quantitative assess- ments and hedging activities affect an entity's financial position, ment in determining the primary beneficiary of aVIE and significantly financial performance and cash flows. The guidance amends and

- 48

WESTAR ENERGY 1 .2009 ANNUAL REPORT expands the disclosure requirements related to derivative instru- On May 29, 2009, the KCC issued an order allowing us to adjust our ments and hedging activities by requiring qualitative disclosure prices to include costs associated with environmental investments about objectives and strategies for using derivatives, quantitative made in 2008. This change went into effect on June 1, 2009, and is disclosure about fair value amounts of gains and losses on derivative expected to increase our annual retail revenues by $32.5 million.

instruments and disclosures about credit-risk-related contingent features, in derivative 'agreements. This guidance is effective for On March 6, 2009, the KCC issued an order allowing us to adjust fiscal years beginning after November 15, 2008. We adopted this our prices to include updated transmission costs. This change went guidance effective January 1, 2009. See Note 4, "Financial and into effect on March 13,2009, and is expected to increase our annual Derivative Instruments, Trading Securities, Energy Marketing and retail revenues by $31.8 million.

Risk Management." On January 21, 2009, the KCC issued an order expected to increase our annual retail prices by $130.0 million to reflect investments in Fair Value Measurements natural gas generation facilities, wind generation facilities and other In September 2006, FASB issued guidance that defines fair value, capital projects, costs to repair damage to our electrical system, which establishes a..framework, for measuring fair value in GAAP and were previously deferred as a regulatory asset, higher operating expands disclosures about fair value measurements. This guidance costs in general. and an updated capital structure. The new prices is effective for fiscal years beginning after November 15, 2007, with became effective on February 3, 2009.

the cumulative-effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We adopted the On September 18, 2008, the KCC issued an order allowing us guidance for financial assets and liabilities recognized at fair value to adjust our prices to include updated transmission costs. This on a recurring basis effective January 1, 2008, and for non-financial change was expected to *increase our annual retail revenues by assets and liabilities recognized at fair'value on a nonrecurring basis $6.1 million.

effective January 1, 2009.The adoption of this guidance did not have On May 29,2008; the KCCissued an order allowing us to adjust our a material impact on our consolidated financial results. See Note 4, prices to include costs associated with environmental investmenits "Financial and Derivative Instrumients, Trading Securities, Energy made in 2007 This change went into effect on June 1, 2008, and was Marketing and Risk Management'."...

expected to increase our'annual retail revenues by $22.0 million.

In April 2009, FASB issued guidance on two separate fair value issues. Both- of the releases are effective for interim and annual FERC Proceedings reporting periods ending after June 15, 2009, and we adopted both Requests for Changes in Rates of them effective April 1, 2009. One of the releases provides On October 15, 2009, we filed our updated transmission formula guidance for determining fair value when the volume and level of rate which includes projected 2010 transmission capital expendi-activity for an asset or liability have significantly decreased and for tures and operating costs. Our updated transmission formula rate identifying transactions that are not orderly.We adopted this guidance was effective January 1, 2010, and is expected to increase our annual without a material impact on our consolidated financial results. The transmission revenues by $16.8 million.

other release requires disclosures about the fair value of financial instruments in interim reporting periods as well as in annual financial In July and August 2009, the Federal Energy Regulatory Com-statements. See Note 4, "Financial and Derivative Instruments, mission (FERC) approved our requests to implement a cost-based Trading Securities, Energy Marketing and Risk Management." formula rate for two of our wholesale customers. The use of a cost-based formula rate allows us to adjust our prices to reflect changes In September 2009, FASB issued guidance permitting entities to in our cost of service. On January 12, 2010, FERC issued an order measure the fair value of certain investments on the basis of the net accepting our request to implement' a cost-based formula rate asset value per share of the investments and requiring additional similar to that described above that would be applicable' for sales disclosure about such fair value measurements. This guidance is to other wholesale cutstomers. The cost-based formula rate was effective for interim and annual periods ending after December 15, effective as of December'l, 2009.

2009. We adopted the guidance effective October 1, 2009, without a material impact on our consolidated financial results. On December 2, 2008, FERC issued an order approving a' settle-ment of our transmission formula rate that allows us to include our anticipated transmission capital expenditures for the current year

3. RATE MATTERS AND REGULATION in our transmission formula rate, subject to true up. In addition to KCC Proceedings the true up, we expect to update our transmission formula rate in January of each year to reflect changes in our projected operating On January 27, 2010, the KCC issued an order allowing us to adjust costs and investments.

our prices to include costs associated with our investments in natural gas and wind generation facilities that were not included in On March 24, 2008, FERC issued an order that granted our the price increase approved by the KCC in its January 21,2009, order requested' incentives of an additional 100 basis points above the discussed below. The new prices were effective February. 2010 and base allowed return on equity and a 15-year accelerated recovery are expected to increase our annual retail revenues by $171 million. for an approximately 100 mile, 345 kilovolt transmission line that will run from near Wichita, Kansas, to near Salina, Kansas. We On September 11, 2009, the KCC issued an order, effective January 1, completed construction of the first segment of this line in December 2009, allowing us to establish a regulatory asset or liability to track 2008 and expect the second segment to be completed in 2010.

the cumulative difference between current year pension and post-retirement benefits expense and the amount of such expense In December 2007, FERC issued an order accepting proposed recognized in setting our prices. At the time of a future rate case, we changes in the capital structure used in our transmission formula expect to amortize such regulatory asset or liability as part of rate. This rate change was effective June 1, 2007, and the resulting resetting base rates. customer refunds have been completed. '"

49-

WESTAR ENERGY 1 2009 ANNUAL REPORT

4. FINANCIAL AND DERIVATIVE INSTRUMENTS, TRADING " Level 1 - Quoted prices are available. in active markets for SECURITIES, ENERGY MARKETING AND RISK identical assets or liabilities. The types of assets and liabilities MANAGEMENT included in level. 1. are highly liquid and actively. traded instruments with quoted prices, such as equities listed on public Values of Financial and Derivative Instruments exchanges and exchange-traded futures contracts..

We carry cash and cash equivalents, short-term borrowings and " Level 2 - Pricing inputs are not quoted prices in active markets, variable-rate debt on our consolidated balance sheets at cost, which but are either directly or indirectly observable. The types of assets approximates fair value. We measure the fair value of fixed-rate debt and liabilities included in level 2 are typically either comparable to based on quoted market prices for the same or similar issues or actively traded securities or contracts, such as treasury securities on the current rates offered for instruments of the same remaining with pricing interpolated from recent trades of similar securities, maturities and redemption provisions. The recorded amount or priced with models using highly observable inputs, such as of accounts' receivable and other current financial instruments commodity options priced using observable forward prices and approximates fair value. volatilities.

Most of our investments in,equity, debt and commodity instruments

• Level 3 - Significant inputs to pricing have little'or no trans-are recorded at fair value using quoted market prices or valuation parency. The types of assets and liabilities included~in level 3 are models utilizing observable market data when available. A portion those with inputs requiring significant management'judgment of our investments is comprised of private equity investments, debt or estimation, such' as the complex and subjective models and or real estate securities that require significant unobsernable market forecasts used to determine the fair value of options, real estate information to measure the fair value of the iinvestments. The fair investments and long-term fuel supply contracts.

value of private equity investments is initially measured at cost or at The following table provides the amounts and their corresponding the value derived from subsequent financingwith adjustments when level of hierarchy for our assets and liabilities that are measured at actual performance differs significantly from expected performance; fair value.

when market, economic or company-specific conditions change; or when other news or events have a material-impact on the security. As of December 31, 2009 Level 1 Level 2 Level 3 Total Debt investments for which we apply unobservable information (InThousands) to measure fair value are principally invested in mortgage-backed Assets:

securities and collateralized loans. These investments are measured Energy Marketing Contracts ..... $ 7,310 $ 17,071 $ 19,431 $ 43,812 at fair value using subjective estimates such asprojected cash flows Nuclear Decommissioning Trust:

Domestic equity ............ . 34,961 5,317 . . 2,262 42,540 and future interest rates. Real estate securities are measured at fair International equity .......... 1,208 24,736 - 25,944 value using market discount rates, projected cash flows and the 21,606 Core bonds. .. 16,082 5,524 -

estimated value into perpeuity. High-yield bonds ............ 5,579 .. 55741 11,320 Real estate securities ........ - - 3,635 *. 3,635 Energy marketing contracts can be exchange-traded or over-the- Commodities .............. . 5,563 - - 5,563 counter (OTC). Fair value measurements of exchange-traded Cash equivalents.... ........ 1,660 -- . - 1,660 contracts typically utilize quoted prices in active markets. OTC Total Nuclear Decommissioning contracts are valued' using market transactions and other market Trust ................. 65,053 35,577 11,638 112,268 evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions Trading Securities:

Domestic equity ............ - 18,344 - 18,344 or alternative pricing sources' with reasonable levels of. price International equity.. .': - 4,422 - 4,422 transparency.Valuation models require a variety of inputs, including Core bonds....... ........ - 11,853 - 11,853 contractual terms, market prices, yield curves, credit curves, Total Trading Securities ...... - 34,619 - 34,619 nonperformance risk, measures of volatility and correlations of such inputs. Certain OTC contracts trade in less liquid markets with Total Assets Measured at Fair Value $ 72,363 1$ 87,267 $ 31,069 $190,699 limited pricing information and the determination of fair value for Liabilities:

these derivatives is inherently more subjective. In these situations; Energy Marketing Contracts .... $ 8,964 $ 15,286 $ 15,121 $ 39,371 management estimations are a significant input. See"- Recurring Fair Value Measurements" and "- Derivative Instruments" below As of December 31, 2008 for additional information. Assets:

Energy Marketing Contracts ..... $ 1,600 $104,821 $ 50,827 $157,248 We measure fair value based on information available as of the Nuclear Decommissioning Trust:

measurement date. The following table provides the carrying Domestic equity ..... ....... 31,139 3,606 2,006 36,751 values and measured fair values of our financial instruments as of International equity.......... ,. 736 16,904. - 17,640 December 31, 2009 and 2008.' Core bonds ...... ; ..... ..... 8,535 5,667 -- 14,202 High-yield bonds. .'.. 4,087 4,347 - 8,434 Carrying Value Fair Value Real estate securities ......... - - 6,028 6,028 Commodities ..... 1,459 - - 1,459 As of December 31, 2009 2008 2009 2008 Cash equivalents ............ . 1,041 - - 1,041 (InThousands)

Total Nuclear Decommissioning Fixed-rate debt, net of Trust ...... ............ 46,997 30,524 8,034 85,555 current maturitiesP ...... $2,373,723 $2,024,178 $2,528,456 $1,749,123 Trading Securities:

amount does not include an equipmentfinancing loan of $1.4 million and 7';This Domestic equity ...... ....... 9,156 - -- 9,156

$2.7 million in 2009 and 2008, respectively. International equity. ....... , 4,264 - - 4,264 Core bonds.................. - 9,503 - 9,503 Recurring Fair Value Measurements Total Trading Securities ..... 13,420 9,503 - $ 22,923 GAAP establishes a hierarchal framework for disclosing the trans- Total Assets Measured at Fair Value .$ 62,017 $144,848 $ 58,861 $265,726 parency of the inputs utilized in measuring assets and liabilities at fair value. The three levels of the hierarchy and examples are as follows: Liabilities:

Energy Marketing Contracts .... $ 1,594 $ 99,004 $ 6,286 $106,884

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WESTAR ENERGY I 2009 ANNUAL REPORT We do not offset the fair value of energy marketing contracts Nuclear Decommissioning Trust executed with the same counterparty. As of December 31, 2009, we Energy have recorded $0.3 million for our right to reclaim cash collateral Year Ended Marketing , Domestic High-yield Real Estate Net December 31, 2008 Contracts, net Equity Debt Securities Balance and $1.8 million for our obligation to return cash collateral. As of December 31, 2008, we had recorded $5.1 million for our right to (InThousands) reclaim cash collateral and $4.5 million for our obligation to return Total unrealized gains (losses) cash collateral. included in:

Earnings(,) . $ 2,842 $ - $ - $ - $ 2,842 The following table provides a reconciliation of assets and liabilities Regulatory assets ... - - , - -

measured at fair value using significant level 3 inputs for the years Regulatory liabilities . 15,460 M) - - - 15,460 ended December 31, 2009 and 2008. Total ................ $18,302 $ - $ - $ - $18,302 Nudear Decommissioning Trust ý, Unrealized gains and losses included in earningsI rbsulting from energy Energy marketing activities are reported in revenues. Unrealized gains and losses Marketing Domestic High-yield Real Estate Net Contracts, net Equity Bonds Securities Balance resultingfrom tradingsecurities arc reported in other income.

( Includes changes in the fair value of certainfuel supply and electricity sale (InThousands) contracts.

Balance as of December 31, 2008 ... $44,541 $ 2,006 $ - $ 6,028 $52,575 Certain investments in the nuclear decommissioning trust and all Total realized and of our trading securities do not have a' readily determinable fair unrealized gains (losses)

• included in: value and are either investment companies or follow accounting

.Earnings(' ......... 3,060 - - - 3,060 guidance consistent with investment companies: In certain situa-Regulatory assets ... (15,382)(1) - - (15,382) tions these investments may have redemption res.trictions. The Regulatory liabilities . (22,750)( 1) (39) 1,134 (2,393) (24,048) following table provides further information on these investments.

Purchases, issuances Fair Value and settlements ...... (5,159) 295 4,607(l) - (257) as of Balance as of December 31, Unfunded Redemption Length of 2009 Commitments Frequency Settlement December 31,2009. .. $ 4,310 $ 2,262 $ 5,741 $ 3,635 $15,948 (inThousands)

Balance as of January 1, 2008... "$41,141 $ 1,251 $ - $ - $42,392 Nuclear Decommissioning Trust:

Total realized and Domestic equity ..... ; ..... $ 7,579 $ 3,111 (W (W International equity ........ 24,736 - Monthly 11- 18 days unrealized gains (losses) included in: Core bonds .............. 5,524 - Upon Notice 5 days

1. . . . . . . . High-yield bonds .......... 5,741 - Upon Notice 3 days Earnings(') . (1,454) - - - (1,454)

Real estate securities(') ...... 3,635 - Quarterly 60 days Regulatory liabilities . 12,289(l) (88) - 28 12,229 Purchases, issuances Total Nuclear and settlements ...... (7,435) 843 - 6,000 (592) Decommissioning Trust ... $ 47,215 $ 3,111 Balance as of Trading Securities:

December 31,2008... $44,541 $ 2,006 $ - $ 6,028 $52,575 Domestic equity ........... $ 18,344 $ - Upon Notice 1 day International equity ........ 4,422 - Upon Notice I day f Unrealized and realized gains and losses included in earnings resulting from Core bonds .............. 11,853 - Upon Notice 1 day energy marketing activities are reported in revenues. Unrealized and realized Total Trading Securities .... 34,619 -

gains and losses resultingfrom trading securitiesare included in other income.

(')Includes changes in the fair value of certain fuel supply and electricity sale Total .................... $ 81,834 $ 3,111

. contracts.

ýcWe used proceeds from the sale of certain debt investments measured at "'About 30% of the fair value is in long-term private equity funds that do not fair value using level 2 inputs to purchase different debt investments using permit early withdrawal.The funds may begin liquidating in about 6 to 11 significant level 3 unobservable inputs to measure at fair value. years unless the terms of the investments are extended. Our investments in these funds cannot be withdrawn until the underlying investments have been liquidated which may take years from the date of initial liquidation. The A portion of. the gains and losses contributing to changes in net *remaining 70% of the fair value permits liquidation upon notice and settles in assets in the above table is unrealized.The following table summarizes three days.

the unrealized gains and losses we recorded on our consolidated ()5Due to recent volatility in real estate markets, we are unable to liquidate this financial statements during the years ended December 31, 2009 investment as of the measurement date. It is unknown how long this restriction and 2008, attributed to level 3 assets and liabilities still held as of will persist.

December 31, 2009 and 2008, respectively.

Nuclear Decommissioning Trust Nonrecurring Fair Value Measurements Energy Wolf Creek files a nuclear decommissioning study with the KCC Year Ended Marketing Domestic High-yield Real Estate Net December 31, 2009 Contracts, net Equity Debt Securities Balance every three years. In 2009, we recorded a $20.3 million increase in our ARO to reflect revisions to the estimated costs to decommission (InThousands)

Wolf Creek. The increase in the ARO is measured at fair value.

Total unrealized gains (losses) The fair value of the ARO is measured by estimating the cost to included in: decommission Wolf Creek at the end of its life 'then discounting Earnings(,)......... $ (474)r $ -- $ -- $ -- $ (474)

(8,545 )(b that value at a risk'- and inflation-adjusted rate. To determine the Regulatory assets ... (8,545)

Regulatory liabilities . (9,634)(b) (39) 1,134 (2,497) (11,036) cost to decommission Wolf Creek at the end of its life, we must estimate the cost of basic inputs such as labor, energy, materials Total .............. $(18,653) $ (39) $ 1,134 $ (2,497) $(20,055) and burial, and the probability that costs may change. To determine 51

WESTAR ENERGY I 2009 ANNUAL REPORT the appropriate discount rate, we use inputs such as inflation rates, We use the term economic hedge to mean a strategy intended short and long-term yields for U.S. government securities and our to manage risks of volatility in prices or rate movements on nonperformance risk. Due to the significant unobservable inputs selected assets, liabilities or anticipated transactions by creating required in our measurement,-we have determined that this ARO a relationship in which gains or losses on derivative instruments is a level 3 liability in the fair value hierarchy. are expected to offset the losses or gains on the assets, liabilities or anticipated transactions exposed to such market risks.

Derivative Instruments We engage in both financial and physical trading with the goal of Price Risk managing our commodity price risk, enhancing system reliability We use various types of fuel, including coal, natural gas, diesel and and increasing profits. We trade electricity and other energy-related oil, tO operate our plants and occasionally purchase power to meet products using a variety of financial instruments, including futures customer demand. We are exposed to market risks from commodity contracts, options, and swaps, and we trade energy commodity price changes for electricity and other energy-related products and contracts. interest rates that could affect our consolidated financial results including cash flows. We manage our exposure to these market We classify derivative instruments as energy marketing contracts risk's through our regular operating and financing activities and, on our consolidated balance sheets. We report enrergy marketing when we deem appropriate, we economically hedge a portion of contracts representing unrealized gain positions as assets; energy these risks through the use of derivative financial instruments for marketing contracts representing unrealized loss positions are non-trading purposes.

reported as liabilities. With the exception of certain fuel' supply and electricity sale contracts, which we record as regulatory assets Factors that affect our commodity price exposure are the quantity or regulatory liabilities, we include the change in the fair value and availability of fuel used for generation and the quantity of of energy marketirfg contracts in revenues on our consolidated electricity customers consume. Quantities of fossil fuel we use statements of income. We do not hold derivative instruments to generate electricity fluctuate from period to period based on that are designated as hedging instruments:'The following table availability, price and deliverability of a given fuel type, as well as presents the fair value of derivative instruments reflected on our planned and unscheduled outages at our generating plants that consolidated balance sheet. use fossil fuels. Our commodity exposure is also affected by our nuclear plant refueling schedule. Our customers' electricity usage Commodity Derivatives Not Designated as Hedging Instruments as of December 31, 2009 also varies.based on weather, the economy and other factors.

Asset Derivatives Liability Derivativ._J ves The wholesale power and fuel markets are volatile which impacts Balance Sheet Location Fair Value Balance Sheet Location Fair Value our costs of purchased power and our participation in energy trades.

(InThousands) (InThousands) We trade various types of fuel primarily to reduce exposure related Current assets: Current liabilities: to the volatility of commodity prices and a significant portion of our Energy marketing Energy marketing coal requirements is purchased under long-term contracts. If we contracts ........... $ 33,159 contracts ..... .$ 39,161 were unable to generate an adequate supply of electricity for our Other assets: Other liabilities:

Energy marketing Energy marketing customers, we would purchase power in the wholesale market to contracts ........... 10.653 contracts ...... 210 the extent it is available, subject to possible transmission constraints, and/or implement curtailment or interruption procedures as Total .................... $ 43,812 Total . .. . .. . .. . .. . .. . . .. $39,371 permitted in our tariffs and terms and conditions of service.

The following table presents how changes in the fair value of Credit Risk commodity derivative instruments affected our consolidated In addition to commodity price risk, we are exposed to credit financial statements for the year-ended December 31, 2009. risks associated with the financial condition of- counterparties, product location (basis) pricing differentials, physical liquidity Location Net Gain Net Loss constraint and other risks. Declines in the creditworthiness of our (InThousands) counterparties could have a material adverse impact on our overall Revenues increase .................................. $ 7,790 $ - exposure to credit risk. We maintain credit policies with regard Regulatory assets increase ........................... - 7,064 to our counterparties intended to reduce our overall credit risk Regulatory liabilities decrease ......................... 30,330 exposure to a level we deem acceptable and include the right to As of December 31, 2009, we had under contract the following offset derivative assets and liabilities by counterparty.

energy-related products. We have derivative instruments with commodity exchanges and Unit of Measure Net Quantity other counterparties that do not contain objective credit-risk-related contingent features. However, certain of our derivative Electricity .................................... MW h 4,147,800 Natural Gas .................................. MMBtu 648,000 instruments contain collateral provisions subject to credit rating Coal ......................................... Ton 3,500,000 agencies' assessments of our senior unsecured debt. If our senior unsecured debt ratings were to decrease or fall below investment Net open positions exist, or are established, due to the origination of grade,; the counterparties to the derivative instruments, pursuant new transactions and our assessment of, and response to, changing to such provisions, could require us to post collateral on derivative market conditions. To the extent we have net open positions, we instruments. The aggregate fair value of all derivative instruments are exposed to the risk that changing market prices could have a with objective credit-risk-related contingent features that were in a material adverse impact on our consolidated financial results. liability position as of December 31, 2009, was $1.4 million, for which we had posted no collateral. If all credit-risk-related contingent Energy Marketing Activities features underlying these agreements had been triggered as of Within our energy trading portfolio, we may establish certain December 31, 2009, we would have been required to provide to positions intended to economically hedge a portion of physical our counterparties $0.1 million of additional collateral after taking sale or purchase contracts and we may enter into certain positions into consideration the offsetting impact of derivative assets and net attempting to take advantage of market trends and conditions. accounts receivable.

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WESTAR ENERGY, 1 2009 ANNUAL REPORT

5. FINANCIAL INVESTMENTS AND TRADING.SECURITIES The following table presents the fair value and the gross unrealized losses of the available-for-sale securities held in the nuclear We report some of our investments in debt and equity securities at decommissioning -trust fund aggregated .by investment category fair value and use the specific identification method to determine and the length of time that individual securities have been in a their cost for computing realized gains or losses. We classify continuous unrealized loss position as of December. 31, 2009.

these investments as either trading securities or available-for-sale securities as described below. Less than 12 Months 12 Months or Greater Total Trading Securities 'Gross Gross Gross Fair Unrealized Fair Unrealized Fair Unrealized We have debt and equity investments in a trust used to fund Value Losses Value Losses Value Losses retirement benefits that we classify as trading securities. We include (InThousands) any unrealized gains or losses on these securities in investment Equity securities .... $4,321 S(381) $16,314 $ (2,812) $20,635 $ (3,193) earnings on our consolidated statements of income. There was Debt securities ..... 5,579 (460) 5,579 (460) an unrealized gain of $11.3 million as of December.31, 2009, an Real estate ........ 40 (16) 3,595 (2,555) 3,635 (2,571) unrealized loss of $9.5 million as of December 31, 2008, and. an Commodities ....... 5,563 (332) 5,563 , (332) unrealized gain of $2.8 million as of December 31, 2007.

Total ............ $4,361 $(397) $31,051 $ (6,159) $35,412 $ (6,556)

Available-for-Sale Securities We hold investments in debt and equity securities in a trust fund for the purpose of funding the decommissioning of Wolf Creek. 6. PROPERTY, PLANT AND EQUIPMENT We have classified these investments as available-for-sale and The following is'a summary of our property, plant and equipment have recorded all such investments at their fair market value as of balance.

December 31, 2009 and 2008. At December 31, 2009, investments in the nuclear decommissioning trust fund were allocated 61% to As of December 31, 2009 2008 equity securities, 29% to debt securities, 3% to real estate, 5% to ,in Thousands) commodities and 2% to cash and cash equivalents. Investments Electric plant in service.. .............. $ 8,057,793 $7,182,589 in debt securities are limited to funds which invest principally in Electric plant acquisition adjustment ............ 802,318 802,318 U.S. government and agency securities, municipal bonds, corporate Accumulated depreciation .................... (3,370,805) (3,249,007) securities or foreign debt. As of December 31, 2009, the fair value of 5;489,306 4,735,900 the debt securities in the nuclear decommissioning trust fund was Construction work in progress......... ....... 214,705 733,816

$32.9 million entirely held in closed end funds, bond mutual funds Nuclear fuel; net .. : ........................ 67,729 63,771 and indexed bond funds: Net utility plant... ....................... . 5,771,740 5,533,487 Non-utility plantin service .... ..-... ......- 34 Using the specific identification method to determine cost, we realized a $78 million and $20.1 million loss in 2009 and 2008, Net property, plant and equipment ............ $5,771,740 $5,533,521 respectively, and a $5.7 million gain in 2007 on our available-for-sale securities. We record net realized and unrealized gains and We recorded depreciation expense on property, plant and equipment losses in regulatory liabilities on our consolidated balance sheets. of $228.6 million in 2009, $180.8 million'in 2008 and $170.0 million This reporting is consistent with the method we use to account for in 2007 the decommissioning costs we recover in our prices. Gains or losses on assets in the trust fund are recorded as increases or decreases to regulatory liabilities and could result in lower or higher funding 7.JOINT OWNERSHIP OF UTILITY PLANTS requirements for decommissioning costs, which we believe would Under joint ownership agreements with other utilities, we have be reflected in. the prices paid by our customers. undivided ownership interests in four electric generating stations.

The following table presents the costs and fair values of investments Energy generated and operating expenses are divided on the same in the nuclear decommissioning trust fund as of December 31, 2009 basis as ownership with each owner reflecting its respective costs and 2008. in its statements of income and each owner responsible for its own financing. Information relative to our ownership interest in these Gross Unrealized facilities as of December 31, 2009, is shown in the table below.

Security Type Cost Gain Loss Fair Value Our Ownership as of December 31, 2009 (InThousands)

Owner-2009: Construction ship Equity securities .............. $ 59,662 $12,015 $ (3,193) .$ 68,484 In-Service Accumulated Work in Net Percent-Debt securities ................ 32,009 1,377 (460) 32,926 Dates Investment Depreciation Progress MW age Real estate .................. 6,206 - (2,571) 3,635 (Dollars vnThousands)

Commodities ................ 5,895 --. (332) 5,563 LaCygne unit 1(a), June 1973 $ 285,895 $ 140,125 $ 18,904 368 50 Cash equivalents ............. 1,660 - - 1,660 Jeffrey unit 1( .. July 1978 481,397 185,928 3,262 665 92 Total ..................... $105,432 $13,392 $ (6,556) $112,268 Jeffreyunit 2(a) ... May 1980 442,151 178,112 31,579 667 92 Jeffrey unit 30) . May 1983 662,638 231,863 306 659 92 2008: Wolf Creekel) ..... Sept. 1985 1,458,616 703,312 43,431 545 47 Equity securities .............. $ 68,534 $ 2,308 $(16,451) $ 54,391 State Line(,) ...... June 2001 115,321 36,554 33 199 40 Debt securities ............... 25,598 6 (2,968) 22,636 Real estate .................. 6,102 - (74) 6,028 Total .......... $3,446,018 $1,475,894 $ 97,515 3,103 Commodities ................ 2,511 - (1,052) 1,459 5 Cash equivalents ............. 1,041 - - 1,041 *"Jointly owned with Kansas City Power & Light Company (KCPL).

eý)Jointly owned with KCPL and Kansas Electric Power Cooperative,Inc.

Total ..................... $103,786 $ 2,314 $(20,545) $ 85,555

(,Jointlyowned with Empire DistrictElectric Company.

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WESTAR ENERGY 1 2009 ANNUAL REPORT We include in operating expenses on our consolidated statements 9. LONG-TERM DEBT of income our share of operating expenses of the above plants, as well as such expenses for a 50% undivided interest in La Cygne Outstanding Debt Generating Station (La Cygnb) unit 2 sold and leased back to KGE The following table summarizes our long-term debt outstanding.

in 1987, representing 341 megawatts (MW) of capacity. Our share As of December 31, 2009 2008 of other transactions associated with the plants is included in the (InThousands) appropriate classification on our consolidated financial statements.

Westar Energy In 2007, we purchased an 8% .leasehold interest in Jeffrey Energy First mortgage bond series:

Center and assumed the related lease obligation. We recorded a capi- 6.00% due 2014 ............................. $ 250,000 $ 250,000 tal lease of $118.5 million related to this transaction. This increased 5.15% due 2017 ............................. 125,000 125,000 5.95% due 2035 ........................... 125,000 125,000 our interest in Jeffrey Energy Center to 92%. Amounts presented 5.10% due 2020 ............................. 250,000 250,000 above do not include this capital lease or related depreciation. 5.875% due 2036 ............................ 150,000 150,000 6.10% due 2047 ..... 150,000 150,000 8.625% due 2018 .......................... . 300,000 300,000

8. SHORT-TERM DEBT 1,350,000 1,350,000 On February 15,2008, FERC granted our request to issue short-term Pollution control bond series:

securities and pledge KGE mortgage bonds in order to increase the Variable due 2032, 0.48% as of December 31, 2009; size of Westar Energy's revolving credit facility from $500.0 million 2.75% as of December 31, 2008 ............... 45,000 45,000 to $750.0 million. On February 22, 2008, a syndicate of banks in the Variable due 2032, 0.54% as of December 31, 2009; credit facility increased their commitments to $750.0 million in the 2.31% as of December 31, 2008 ............... 30,500 30,500 aggregate with $730.0 million of the commitments terminating on 5.00% due 2033 ............................. 57,760 58,215 March 17, 2012, and the remaining $20.0 million of commitments 133,260 133,715 terminating on March 17, 2011. Other long-term debt: ...........................

Lehman Brothers Commercial Paper, Inc. (Lehman Brothers) was 4.36% equipment financing loan due 2011 ........ 1,406 2,694 7.125% unsecured senior notes due 2009.......... - 145,078 the participating lender with respect to the $20.0 million commit-ment terminating on March 17, 2011. On October 5, 2008, Lehman 1,406 147,772 Brothers filed for bankruptcy protection. Under terms of the credit KGE facility, we have the right to replace Lehman Brothers should First mortgage bond series:

another lender or lenders be willing to replace the $20.0 million 6.53% due 2037 ............................. 175,000 175,000 commitment. To dafe, we have elected not to seek a replacement 6.15% due 2023 ............................. 50,000 50,000 lender. As a result, until such time as we seek ahd locate a 6.64% due 2038 ............................. 100,000 100,000 6.70% due 2019 ............................. 300,000 -

replacement lender or lenders, the revolving credit facility is limited to $730.0 million. 625,000 325,000 The weighted average interest rate on our borrowings under the Pollution control bond series:

5.10% due 2023 ............................. 13,463 13,463 revolving credit facility was 0.58% and 0.88% as of December 31, Variable due 2027, 0.64% asof December 31, 2009; 2009, and December 31, 2008, respectively. As of February 17, 2010, 1.95% as of December 31, 2008 ............... 21,940 21,940

$228.1 million had been borrowed and an additional $23.9 million 5.30% due 2031 .......... ............ 108,600 108,600 of letters of credit had been issued under the revolving credit facility. 5.30% due 2031 ....... .......... ...... 18,900 18,900 Variable due 2032, 0.64% as of December 31, 2009; Additional information regarding our short-term borrowings is as 1.95% as of December 31, 2008 ............... 14,500 14,500 follows. Variable due 2032, 0.64% as of December 31, 2009; 1.95% as of December 31, 2008 , ................ 10,000 10,000 As of December 31, 2009 2008 4.85% due 2031 ....................... 50,000 50,000 (Dollars in Thousands) Variable due 2031, 1.647% as of December 31, 2008. - 50,000 Weighted average short-term debt 5.60% due 2031 .........................  :... 50,000 50,000 outstanding during the year ....................... $200,547 $270,756 6.00% due 2031 ............................. 50,000 50,000 Weighted daily average interest rates 5.00% due 2031 ... .. .. ...... ... ... ... .. 50,000 -

during the year, excluding fees .................... 0.76% 3.31% 387,403 387,403 Total long-term debt ............................ 2,497,069 2,343,890 Our interest expense on short-term debt was $2.2 million in 2009 and $9.7 million in 2008 and 2007 Unamortized debt discount() ...................... (4,990) (4,986)

Long-term debt due within one year ............. (1,345) (146,366)

Long-term debt, net ..................... $2,490,734 $2,192,538

() We amortizedebt discount to interestexpense over the term of the respective issue.

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WESTAR ENERGY 1 2009 ANNUAL REPORT The Westar Energy and KGE mortgages each contain provisions Proceeds from the issuance of first mortgage bonds were used to restricting the amount of first mortgage bonds that could be issued repay borrowings under Westar Energy's revolving credit facility, by each entity. We must comply with such restrictions prior to with those borrowed amounts principally related to investments the issuance of additional first mortgage bonds or other secured in capital equipment, as well as for working capital and generai indebtedness. corporate purposes.

The amount of Westar Energy first mortgage bonds authorized by Debt Covenants its Mortgage and Deed of Trust, dated July 1,1939, as supplemented, Some of our debt instruments contain restrictions that require is subject to certain limitations as described below. The amount of us to maintain lev~rage ratios as defined in the agreements. We KGE first mortgage bonds authorized by the KGE Mortgage and calculate these ratios in accordance with our credit agreements. We Deed of Trust, dated April 1,1940, as supplemented and amended in use these ratios solely.to determine compliance with our various June 2009, is limited to a maximum of $3.5 billion, unless amended debt covenants. We were in compliance with these covenants as of further. First mortgage bonds are secured by utility assets. Amounts December 31, 2009.

of additional bonds that may be issued are subject to property, earnings and certain restrictive provisions, except in' connection Maturities with certain refundings, of each mortgage. As of December 31, Maturities of long-term debt as of December 31,2009, are as follows.

2009, based on an assumed interest rate of 5.875%, approximately

$350.0 million principal amount of additional first mortgage bonds Year Principal Amount could be issued under the most restrictive provisitns in Westar (InThousands)

Energy's mortgage, except in connection with certain refundings. 2 0 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 1,34 5 As of December 31, 2009, approximately $550.0 million principal 20 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 amount of additional KGE first mortgage bonds could be issued 20i2 .............. ........

2 0 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

under the most restrictive provisions in KGE's mortgage. Thereafter ................................................. ' 2,495,663 As of December 31, 2009, we had $121.9 million of variable rate, tax- Total long-term debt maturities ................................ $2,497,069 exempt bonds. Prior to February 2008, interest rates payable under these bonds had historically been set by auctions, which occurred Our interest expense on long-term debt was $139.6 million in 2009, every 35 days. Since then, auctions for these bonds have failed, $95.7 million in 2008 and $94.2 million in 2007 resulting in alternative index-based interest rates for these bonds of between less than 1%and 14 %.On July 31,2008, the KCC approved our request for authority permitting us to remarket or refund all or 10. TAXES part of these auction rate bonds. On each of October 15, 2009, Income tax expense is composed of the following components.

October 10, 2008, and August 26,2008, KGE refinanced $50.0 million of auction rate bonds at fixed interest rates of 5.00%, 6.00% and Year Ended December 31, 2009 2008 2007 5.60%, respectively, all with maturity dates of June 1, 2031. We (InThousands) continue to monitor the credit markets and evaluate our options Income Tax Expense (Benefit) from with respect to the remaining auction rate bonds. Continuing Operations:

Current income taxes:

On August 3, 2009, we repaid $145.1 million principal amount of Federal . $ 2,428 $(16,484) $ 40,648 7.125% unsecured senior notes with borrowings under Westar State .... .. ..... ... ... ... .9,975 (14,841) 9,107 Energy's revolving credit facility. Deferred income taxes:

Federal .......................... 46,148 35,818 9,962 On June 11, 2009, KGE issued $300.0 million principal amount of State. .......................... 3,003 2,147 6,240 first mortgage bonds at a discount yielding 6.725%, bearing'stated Investment tax credit amortization ....... (2,704) (2,704) (2,118) interest at 6.70% and maturing on June 15, 2019. We received net Income tax expense from proceeds of $297.5 million. continuing operations ........... . $ 58,850 $ 3,936 $ 63,839 On November 25, 2008, Westar Energy issued $300.0 'million Income Tax Expense (Benefit) from ,

principal amount of first mortgage bonds at a discount yielding Discontinued Operations:

8.750%, bearing stated interest at 8.625% and: maturing on Current income taxes:

Federal .......................... $(25,528) $ - . $

December 1, 2018. We received net proceeds of $295.6 million. State ....................I...... (10,418) - -

On May 15, 2008, KGE issued $150.0 million principal amount Deferred income taxes: ................

Federal ........................... (20,549) -- -

of first mortgage bonds in a private placement transaction with State ...........................- - -

$50.0 million of the principal amount bearing interest at 6.15% and maturing on May 15, 2023, and $100.0 million bearing interest at Income tax expense from discontinued operations ........... $(56,495) $ - $.. -

6.64% and maturing on May 15, 2038.

Total income tax expens.e ........... $ 2,355 $ 3,936 . 5. 63,839 In January 2008, we increased the size of our 36-month equipment financing loan agreement to $3.9 million for computer equipment purchases made in 2008. As of December 31, 2009, the balance of this loan was $1.4 million.

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WESTAR ENERGY 1 2009 ANNUAL REPORT Deferred tax assets and liabilities are reflected on our consolidated In accordance with various orders,.we have reduced our prices to balance sheets as follows. reflect the tax benefits associated with certain accelerated tax deductions. We believe it is probable that the net future increases in December 31, 2009 2008 income taxespayable will be recovered from customers when these (InThousands) temporary tax benefits reverse. We have recorded a regulatory asset Current deferred tax assets ...................... $ 7,927 $ 16,416 for these amounts. We also have recorded a regulatory liability for Non-current deferred tax liabilities ................. 964,461 1,004,920 our obligation to reduce the prices charged to customers for deferred Net deferred tax liabilities ........................ $956,534 $ 988,504 taxes recovered from customers at corporate tax rates higher than the current tax rates. The price reduction Will occur as the temporary The tax effect.of the temporary differences and carryforwards that differences resulting in the excess deferred tax liabilities reverse.

comprise our deferred tax assets and deferred tax liabilities are The tax-related regulatory assets and liabilities as well as unam-summarized in the following table. ortized investment tax credits'are also temporary differences for which deferred taxes have been provided. The net deferred tax December 31, 2009 2008 liabilitjy related to these temporary differences is classified above as (InThousands) amounts due from customers for future income taxes.

Deferred tax assets:.

Deferred employee benefit costs ............... $ 132,770 $ 162,130 The effective income tax rates are computed by dividing total Business tax credit carryforwards51 . . . . . . . . . . . . . 101,347. 6,528 federal and state income taxes by. the sum of such taxes and net Deferred gain on sale-leaseback ............... 47,800 50,218 income. The difference between the effective income tax rates and Deferred compensation ..................... 38,198 37,221 the federal statutory income tax rates are as follows.

Accrued liabilities .......................... 35,230 33,038 Alternative minimum tax carryforward4) ..... . 18,406 7,811 For the Year Ended December 31, . .2009 2008 2007 Disallowed costs ........................... 14,000 14,648 Statutory federal income tax rate Capital loss carryforw ard(' ................... 6,075 215,946 from continuing operations ................ 35.0% 35.0% 35.0%

Long-term energy contracts .................. 5,874 7,088 Effect of:

Other .................................. 4 1,254 37,916 Corporate-owned life insurance policies ....... (8.2) (9.1) (5.8)

Total gross deferred tax assets ............... 440,954 572,544 State income taxes .................... 4.3 (4.5) 4.4 Less: Valuation allowanceil) . . . . . . . . . . . . . . . . . . . 9,710 219,537 Accelerated depreciation flow through and am ortization .................. .... 3.7 2.3 2.7 Deferred tax assets ..................... $ 431,244 $ 353,007 Production tax credits ......... i ...... .... (3.0)

Deferred tax liabilities: Amortization of federal investment tax credits . . (1.4) (1.5) (0.9)

Accelerated depreciation .................. $ 789,850 $ 709,097 AFUDC equity ...................... (0.9) (3.5) (0.6)

Acquisition premium ....................... 203,959 211,972 Capital loss utilization ..................... . (0.4) (15.4 (1.2)

Amounts due from customers for Liability for unrecognized income tax bernefits... 0.2 (15.4) 0.6 Net operating loss utilization ............... - - (5.1) future incometaxes, net ................... 165,975 179,283 (1.11 (1.61 Deferred employee benefit costs ............... 141,974 173,457 Other...................... . . ........ 0.1 Other ................................... 86,020 67,702 Effective income tax rate from Total deferred tax liabilities ................. $1,387,778 $1,341,511 continuing operations: ................. 29.4% 2.2% 27.5%

Net deferred tax liabilities ................... . $ 956,534 $ 988,504 We file income tax returns in the U.S. federal jurisdiction, and (r)As of December 31, 2009,we had availablefederal generalbusiness tax credits various state and foreign jurisdictions. The income tax returns we of $18.4 million and state investment tax credits of $82.9 million. The federal file will likely be audited by the IRS or other taxing authorities.

generalbusiness tax creditsweregeneratedfrom affordablehousing partnerships With few exceptions, the statute of limitations with respect to U.S.

in which we sold the majority of our interests in 2001. These tax credits expire federal, state and local, or non-U.S. income tax examinations by tax beginning in 2019 and ending in 2025. The state investment tax credits expire beginning in 2011. We believe these tax credits will be fully utilized prior to authorities'are closed for tax years before 2003.

expiration. In February 2008, we reached a settlement with the IRS for tax years (brAs of December 31, 2009, we had available alternative minimum tax credit 1995 through 2002 on issues related principally to the method used carryforwards of $18.4 million. These tax credits have an unlimited carry-to capitalize overheads to electric plant. This'settlement resulted in a forward period.

0As of December 31, 2009, we had a net capital loss of $15.3 million that was 2008 net earnings benefit of approximately $39.4 million, including availableto offset future capitalgains. Of this amount, $0.5 million will expire interest, due to the recognition of previously unrecognized income in 2013 and $14.8 million will expire in 2014. As we do not expect to realize tax benefits.

any significant capitalgains in thefuture, a valuationallowance of $5.9 million has been established.In addition, a valuation allowance of $3.8 million has In January 2009, the Joint Committee on Taxation of the U.S. Con-been established for certain deferred tax assets related to the write-down of gress approved a settlement with the IRS Office of Appeals regard-other investments. The total valuation allowance related to the deferred ing the reicharacterization of a portion of the loss we incurred on tax assets was $9.7 million as'of December 31, 2009, and $219.5 million the sale of Protection One, a former subsidiary, from a capital loss as of December 31, 2008. The net reduction in the valuation allowance of to an ordinary loss. The settlement involved i determination of the

$209.8.million was due to the expirationof the capitalloss arisingfrom the sale amount of the net capital loss and net operating loss carryforwards of Protection One, Inc. (Protection One). See the discussion below regardingthe available as offDecember 31, 2004, to offset income in tax years after settlement with the Internal Revenue Service (IRS) Office of Appeals for years 2004. On March 31, 2009, we- filed amended federal income tax 2003 and 2004.

returns for tax years 2005, 2006 and 2007 to claim a portion of the tax benefits from the net operating loss carryforward. The IRS examined these amended federal income tax returns in 2009

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WESTAR ENERGY I 2009 ANNUAL REPORT during its examination of tax year 2007 and we have agreed on a The amounts of unrecognized income tax benefits that, if recognized, tentative settlement. The settlement is subject to formal review and would favorably impact our tax provisions from continuing or approval by the IRS and the Joint Committee on Taxation'of the discontinued operations, were $2.1 million, $54.8 million and U.S. Congress. If the settlement is effected in accordance with our $172.2million (net of tax) as of December 31, 2009, 2008 and 2007, expectations, we will receive a tax refund of $34.9 million, which respectively. Included in the liability for unrecognized income tax will have no impact on our consolidated statements of income. We benefits balances was $2.1 million, $1.7 million and $33.4 million expect to realize the remainder of the tax benefits from the net (net of tax) of tax positions, which if recognized, would favorably operating loss carryforward in future tax years. We have extended impact our effective income tax rates from continuing operations as the statute of limitation for tax years 2004, 2005 and 2006 until of December 31, 2009, 2008 and 2007, respectively December 31, 2010.

Interest related to income tax uncertainties is classified as interest In January 2010, we were notified that the IRS will commence an expense and accrued interest liability. During 2009, 2008 and 2007, examination of our federal income tax return for tax year 2008 in we reversed interest expense previously recorded for income the first quarter of 2010. tax uncertainties of $2.4 million, $15.9 million and $5.3 million, Under the terms of our tax sharing agreement, we reimburse respectively. As of December 31, 2009 and 2008, we had $1.4 million subsidiaries for current tax benefits used in our consolidated tax and $3.8 million, respectively, accrued for interest on our liability return. Under an agreement relating to the sale of Protection One related to unrecognized tax benefits. There were no penalties in 2004, we are required to pay Protection One an amount equal to accrued at either December 31, 2009, or December 31, 2008.

50% of the net tax benefit (less certain adjustments) that we will As of December 31, 2009 and 2008, we maintained reserves of receive from the net operating loss carryforward arising from the $3.6 million and $3.5 million, respectively, for probable assessments sale. In December 2009, we finalized this tax matter as well as all of taxes other than income taxes.

other outstanding claims and paid Protection One $22.8 million.

With this payment, we have no further obligations to Protection One. We recorded a net earnings benefit in discontinued operations 11. EMPLOYEE BENEFIT PLANS of approximately $33.7 million to reflect the tax benefit of the IRS Pension and Other Post-Retirement Benefit Plans settlement (discussed further in the paragraphs above) net of the payment to Protection One. We maintain a qualified non-contributory defined benefit pension plan covering substantially all of our employees. For the majority The amount of unrecognized income tax benefits decreased from of our employees, pension benefits are based on years of service

$92.1 million at December 31, 2008, to $8.4 million at December 31, and an. employee's compensation during the 60 highest paid 2009. The net decrease in unrecognized income tax benefits for consecutive months out of 120 before retirement. Non-union which a liability was not recorded was largely attributable to the employees hired after December 31, 2001, are covered by the same recognition of a $56.5 million income tax benefit from a refund defined benefit plan, however, their benefits are derived from a claim pertaining to the net. operating loss carryforward generated cash balance account formula. We also maintain a non-qualified by the sale of Protection One, the recognition of a $23.3 million Executive Salary Continuation Plan for the benefit of certain current tax benefit from the general business credit carryforwards utilized and retired officers. With the exception of one current officer, we on settlement of uncertain income tax positions and the reversal have 'discontinued accruing any future benefits under this non-of $7.2 million of tax reserves due to the expiration of the statute qualified plan.

of limitation. We expect a reduction, of unrecognized income tax benefits in the amount of $4.9 million in 2010 if the IRS and As provided in the' September 11, 2009, KCC order regarding the Joint Committee on Taxation of 'the U.S. Congress approve pension and post-retirement benefits, we expect to fund our the settlement of tax years 1999, 2005, 2006 and 2007 We do not pension plan each year at least to a level equal to our current year expect any other significant change in the liability for unrecognized pension expense. In addition, our pension plan contributions income tax benefits in the next 12 months. A reconciliation of the must also meet the minimum funding requirements under the beginning and ending amount of unrecognized income tax benefits Employee Retirement Income Security Act (ERISA) as amended by is as follows: the Pension Protection Act. We may contribute additional amounts from time to time.

2009 2008 2007 (InThousands) In addition to providing pension benefits, we provide certain post-Liability for unrecognized income tax retirement health care and life insurance benefits for substantially benefits at January 1 ................. $38,980 $ 70,833 $ 50,211 all retired employees. We accrue and recover in our prices the cost Additions based on tax positions related of post-retirement benefits during an employee's years of service.

to the current year ................... 2,254 4,576 21,660 We fund the portion of net periodic costs for other post-retirement Additions for tax positions of prior years .... - - 5,197 benefits included in our prices.

Reductions for tax positions of prior years ... (25,722) (3,639) -

Settlem ents .......................... (7,155) (32,790) (6,235) As a co-owner of Wolf Creek, KGE is indirectly responsible for Liability for unrecognized income tax 47% of the liabilities and expenses associated with the Wolf Creek benefits at December 31 .............. 8,357 38,980 70,833 pension and other post-retirement benefit plans. See Note 12, Unrecognized income tax benefits related "Wolf Creek Employee Benefit Plans" for information about Wolf to amended returns filed in2007 ........ - 53,092 138,778 Creek's benefit plans.

Unrecognized income tax benefits at December 31 ..................... $ 8,357 $ 92,072 $209,611 57-

WESTAR ENERGY I 2009 ANNUAL REPORT The following tables summarize the status of our pension and other Pension Benefits Post-retirement Benefits post-retirement benefit plans. As of December 31, 2009 2008 2009 2008 Pension Benefits Post-retirement Benefits (Dollars InThousands)

As of December 31, 2009 2008 2009 2008 Pension Plans With a Projected (InThousands) Benefit Obligation InExcess of Plan Assets:

Change in Benefit Obligation: Projected'benefit obligation . $ 662,495 $629,238 $ - $ -

Benefit obligation, Accumulated benefit beginning of year .......... $ 629,238 $578,191 $133,881 $134,135 obligation .............. 559,021 .531,145 -- -

Service cost ................ 12,882 10,102 1,529 1,446 Fair value of plan assets ...... 404,243 310,531 -- -

Interest cost ................ 38,162 35,792 6,917 7,637 Pension Plans With an Accumulated Plan participants' contributions.. 3,098 4,162 Benefit Obligation InExcess Benefits paid ............ (28,526). (28,459) (9,960) (9,639) of Plan Assets:

Actuarial losses (gains) ........ 10,692 32,151 (13,063) (6,541) Projected benefit obligation .. $ 662,495 $629,238 $ -- $ -

1,461 Amendments ....... ....... 47 6,596 2,681 Accumulated benefit Benefit obligation, obligation ............... 559,021 531,145 - -

end of year ............. $ 662,495 $629,238 $ 128,998 $ 133,881 Fair.value of plan assets ...... 404,243 310,531 Post-retirement Plans With an Change in Plan Assets: Accumulated Post-retirement Fair value of plan assets, Benefit Obligation InExcess beginning of year ....... $ 310,531 $468,188 $ 52,804 $ 61,423 of Plan Assets:

Actual return on plan assets .... 83,128 (145,962) 17,898 (14,762) -Accumulated post-retirement Employer contributions ........ 37,304 15,000 9,951 11,348 benefit obligation ........ $ . $ - $128,998 $ 133,881.

Plan participants' contributions.. - - 2,953 3,996 Fair value of plan assets ...... . --. .- 74,114 52,804 Part DReimbursements ....... - - 589 1,465 Weighted-Average Actuarial Benefits paid ............... (26,720) (26,695) (10,081) (10,666) Assumptions used to Fair value of plan assets, Determine Net Periodic end of year ............. $ 404,243 $310,531 $ 74,114 $ 52,804 Benefit Obligation:

Discount rate ............. 5.95% 6.10% 5.65% 6.05%

Funded status, end of year ..... $(258,252) $(318,707) $ (54,884) $ (81,077) Compensation rate increase . . 4.00% .4.00% - -

Amounts Recognized in the Balance Sheets Consist of: We use a measurement date of December 31 for our pension and Current liability .............. $ (1,984) $ (1,933) $ (121) $ (125) other post-retirement benefit plans. In addition, we use an interest Noncurrent liability ........... (256,268) (316,774) ,(54,763) (80,952) rate yield curve that is constructed based on the yields on over 500 Net amount recognized ...... $(258,252) $(318,707) $ (54,884) $ (81,077) high-quality, non-callable corporate bonds with maturities between zero and 30 years. A theoretical spot rate curve constructed from Amounts Recognized in Regulatory Assets Consist of:

this yield curve is then used to discount the annual benefit cash Net actuarial loss ............ $ 275,417 $324,290 $ 5,481 $ 31:648 flows of our pension plan and develop a single-point discount rate Prior service cost ............. 7,872 10,492 19,219 14,127 matching the plan's payout structure.

Transition obligation .......... I - 12,060

• 16,048 We amortize prior service cost (benefit) on a straight-line basis over Net amount recognized ...... $ 283,289 $334,782 $ 36,760 $ 61,823 the average future service of the active employees (plan participants) benefiting under the plan at the time of the amendment. We amortize the net actuarial loss on a straight-line basis over the average future service of active plan participants benefiting under the plan without application of an amortization corridor.

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WESTAR ENERGY I 2009 ANNUAL REPORT Pension Benefits The estimated amounts that will be amortized from regulatory Year Ended December 31, 2009 2008 2007 assets into net periodic benefit cost in 2010 are as follows:

Pension Post-retirement (Dollars inThousands)

Benefits Benefits Components of Net Periodic Cost (Benefit):

Service cost ........................ $ 12,882 $ 10,102 $ 9,641 (InThousands)

Interest cost ........................ 38,162 35,792 32,418 Actuarial loss .................................... $16,980 $ 404 Expected return on plan assets .......... ' (37,826) (40,332) (38,506) Prior service cost ... - ... ...... .. . 2,668 2,176 Amortization of unrecognized: Transition obligation .............................. - 3,912 Transition obligation, net ............. - - -

Prior service costs .................. 2,668 2,550 2,545 Total ...... . ...................... . ... $19,648 $ 6,492 Actuarial loss/(gain), net ............. 14,263 8,415 7,864 Net periodic cost .................... $ 30,149 $ 16,527 $ 13,962 We base the expected long-term rate of return on plan assets on historical and projected rates of return for current and planned Other Changes in Plan Assets and Benefit asset classes in the plans' investment, portfolio. We select assumed Obligations Recognized in Regulatory Assets:

Current year actuarial (gain)/loss ....... $(34,610) $218,444 $ 20,017 projected rates of return for each asset class after analyzing lbng-Amortization of actuarial (loss)/gain .... (14,263) (8,415) (7,864) term historical experience and future expectations of the volatility of Current year prior service cost ........ 48 1,461 136 the various asset classes. Based on target asset allocations for each Amortization of prior service costs ...... (2,668) (2,550) (2,545) asset class, we develop an overall expected rate of return for the Current year offset of Initial Trarsition portfolio, adjusted for historical and expected experience of active Asset due to plan change .......... - -

portfolio management results compared to benchmark returns and Amortization of transition obligation .... - -

Total recognized in regulatory assets .... $ (51,493) $208,940 $ 9,744 for the effect of expenses paid from plan assets.

The Medicare Prescription Drug Improvement and Modernization Total recognized in net periodic cost and regulatory assets .............. $ (21,344) $225,467 $-23,706 Act of 2003 (Medicare Act) introduced a prescription drug benefit under Medicare as well as a federal subsidy that will be paid to Weighted-Average Actuarial Assumptions sponsors of retiree health care benefit plans that provide a benefit used to Determine Net Periodic Cost (Benefit):

that is at least actuarially equivalent to Medicare. We believe our Discount rate ..................... 6.10% 6.25% 5.90%

Expected long-term return on retiree health care benefit plan is at least ac'tuarially equivalent to

. plan assets ...................... 8.25% 8.50% 8.50% Medicare and is,thus, eligible for the federal subsidy. However, due Compensation rate increase .......... 4.00% 4.00% 4.00% to plan changes effective January 1, 2010, we are'no longer entitled to the federal subsidOr. As a result, the subsidy did not have an effect Post-retirement Benefits on our accumulated post-retirement benefit obligation in 2009.

Year Ended December 31, 2009 2008 2007 For 2008 and 2007, treating the future subsidy under the Medicare (Dollars inThousands) Act as an actuarial experience gain, as required by the guidance, Components of Net Periodic Cost (Benefit):

decreased the accumulated post-retirement benefit obligation Service cost ..................... $ 1,529 $ 1,446 $ 1,548 by approximately $4.0 million and $4.6 million, respectively. The Interest cost .......... 7............. 6,917 7,637 7,574 subsidy also decreased the net periodic post-retirement benefit cost Expected return on plan assets ........... (4,756) (4,694) (3,827) by approximately $1.9 million for 2009, $0.5 million for 2008 and Amortization of unrecognized: $0.6 million for 2007 Transition obligation, net ............. 3,912 3,930 3,930 Prior service costs .................. 1,580 1,412 . 937 For measurement purposes, the assumed annual health care cost Actuarial loss/(gain), net ............. (38) 904 . 1,503 growth -rateswere as follows.'

Net periodic cost .................... $ 9,144 $ 10,635 $ 11,665 As of December 31, 2009 2008 Other Changes in Plan Assets and Benefit Health care cost trend rate assumed for next year .......... 8.0% 7.5%

Obligations Recognized inRegulatory Assets: Rate to which the cost trend rate isassumed to decline Current year actuarial (gain)/loss ....... $ (26,205) $ 12,915 $ (5,431) (the ultimate trend rate) .............. ... ........... 5.0% 5.0%

Amortization of actuarial (loss)/gain .... 38 (904) (1,503) Year that the rate reaches the ultimate trend rate .......... 2018 2014 Current year prior service cost .......... 6,672 2,681 13,778 Amortization of prior service costs ...... (1,580) (1,412) (937)

Current year offset of Initial Transition The health care cost trend rate affects the projected benefit Asset due to plan change .......... .(76) - obligation. A 1% change in assumed health care cost growth rates Amnortization of transition obligation .... (3,912) (3,930)  : (3,930) would have effects shown in the following table..

Total recognized in regulatory assets ...... $ (25,063) $ 9,350 $ 1,977 One-Percentage- One-Percentage-Point Increase Point Decrease Total recognized in net periodic cost (InThousands) and regulatory assets ............... $ (15,919) $ 19,985 $ 13,642 Effect on total of service and interest cost ........... $ (44) $ 28 Weighted-Average Actuarial Assumptions Effect on post-retirement benefit obligation ........... 1,008 (771) used to Determine Net Periodic Cost (Benefit):

Discount rate ..................... 6.05% 6.10% 5.80%

Expected long-term return on plan assets ..................... . 7.75% 7.75% 7.75%

Compensation rate increase .......... - - -

59-

WESTAR ENERGY I 2009 ANNUAL REPORT Plan Assets measured at.cost:or at the value derived from subsequent financing We manage pension and other post-retirement benefit plan assets with adjustments when actual performance differs significantly in accordance with the prudent investor guidelines contained inthe from expected performance; when market, economic or company-ERISA.The plans'investment strategies support the objectives of the specific conditions change; or when other news or events have a funds, which are to earn the highest possible return on plan assets material impact on the security. Debt investments for which we consistent with a reasonable and prudent level of risk. We diversify apply unobservable information are measured at fair value using investments across classes, sectors and manager style to minimize subjective estimates such as projected cash flows and future interest the risk of large losses. We delegate investment management rates. Real estate securities are measured at fair.value using market to specialists in each asset class and, where appropriate, provide discount rates, projected cash flows and the estimated value into the investment manager with specific guidelines, which include perpetuity.

allowable and/or prohibited investment types. Prohibited invest- Similar to other assets measured at fair value, GAAP establishes a ments include loans to the company or its officers and directors hierarchal framework for disclosing the transparency of the inputs as well as investments in the company's debt or equity securities, utilized in measuring pension and other post-retirement benefit except as may occur indirectly through investments in diversified plan assets at fair value. See Note 4, "Financial and Derivative mutual funds. We have also established restrictions for certain Instruments, Trading Securities, Energy Marketing and Risk classes of plan assets including that international equity securities Management,"for a description of the hierarchal framework.

should not exceed 25% of total pension plan assets, private equity investments should not exceed 10% of total pension plan assets The following table provides the fair value of our pension plan assets and high yield fixed income investments should not exceed 15% of and their corresponding level of hierarchy as of December. 31, 2009.

total pension plan assets. Additionally, no more than 5 % of pension As of December 31, 2009 Level 1 Level 2 Level 3 Total plan assets and 5% of post-retirement benefit plan assets should (in Thousands) be invested in the securities of a single issuer, with the exception of the U.S. government and its.agencies. We measure and monitor Assets:

Domestic equity ....... $117,862 $ 20,663 $ 9,310 $147,835 investment risk on an ongoing basis through quarterly investment International equity ..... ..... 49,122 51,583 - 100,705 portfolio reviews and annual liability measurements. Core bonds ............. - 72,038 - 72,038 High-yield bonds . .. ....... 22,519' 41,574 The target allocations for our pension plan assets are 60% to equity Real estate securities ...... .. 14,518 14,518 securities, 30% to debt securities, 5% to real estate securities and Commodities ............ - 20,719 - '20,719 5 % to commodity investments. Our investments in equity securities Cash equivalents ............. - 6,854 -- 6,854 include investments in domestic and foreign large-, mid- and small-Total Assets Measured at Fair.Value . $166,984 $190,912 $ 46,347- $404,243 cap companies, private equity funds and investment funds with underlying investments similar to those previously mentioned. Our investments in debt securities include core and high yield bonds.. The following table provides a reconciliation of pension plan assets Core bonds are comprised of investment grade debt securities of measured at fair value using significant level 3 inputs for the year corporate entities, obligations of U.S. and foreign governments and ended December 31, 2009.

their agencies, private debt securities and investment funds with Domestic High-yield Real Estate Net underlying investments similar to those previously Mientionred.

Equity Bonds Securities Balance High yield bonds include non-investment grade debt securities (InThousands) of corporate entities and an investment fund with underlying investments in high yield bonds, private placements, bank debt, Balance as of January 1, 2009 ... $ 8,422 $ 16,993 $ 19,985 $45,400 warrants and convertible bonds. Real estate securities include funds Actual gain (loss) on plan assets:

invested in commercial and residential real estate properties while Relating to assets still held at the commodity investments include funds invested in commodity- reporting date ................ (132) 4,991 (5,643) (784)

Relating to assets sold during related instruments. the period ................... -- 535 176 711 The target allocations for our other post-retirement benefit plan Purchases, issuances and settlements . 1,020 - - 1,020 assets are 65% to equity securities and 35% to debt securities. Balance as of December 31, 2009 .... $ 9,310 $22,519 $ 14,518 $46,347 Our investments in, equity securities include investments in domestic and foreign large-, mid- and small-cap companies. The following table provides the fair- value of our other post-Our investments in debt securities include a core bond fund retirement benefit plan assets and their corresponding level of with underlying investments in investment grade debt securities hierarchy as of December 31, 2009.

of corporate entities, obligations of the U.S. government and its As of December 31, 2009 Level 1 Level 2 Level 3 Total agencies, and cash and cash equivalents.

(inThousands)

Most of our investments in equity, debt and commodity instruments Assets:>

are recorded at fair value using quoted market prices or valuation Domestic equity ............... $ - $' 38,648 $ - $ 38,648 models utilizing observable market data when available. A portion International equity ............. - 9,674 - 9,674 of our investments is comprised of private equity investments, Core bonds .................. 25,792 - 25,792 debt securities or real estate securities that require significant Total Assets Measured at Fair Value.. $ -- $ 74,114 $ - $ 74,114 unobservable market information to measure the fair value of the investments. The fair value of private equity investments is initially

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WESTAR ENERGY I 2009 ANNUAL REPORT Cash Flows of the RSU awards based on the nmarket"price of the underlying The following table shows the expected cash flows for our pension common stock as of the date of grant and recognize that cost as an and other post-retirement benefit plans for future years. expense in the consolidated statement of income over the requisite service, period. The requisite servie periods. range from one to ten Pension Benefits Post-retirement Benefits years. RSU awards with only service' conditions that have a graded To/(From) To/(From) vesting schedule are recognized as an expense in the consolidated To/(From) Company T0/(From) Company Expected Cash Flows Trust Assets Trust Assets statement of income on a straight-line basis over the requisite (In Millions) service period for the entire award; Expected contributions: During the years ended, December 31, 2009,2008 and 2007, our 2010 .................... $ 22.45, $ 2.0 $11.2 "$.0 .1 RSU activity was as follows:

Expected benefit payments:

2010 .................... $ (27.3) $(2.0) $ (8.3) $(0.1) As of December 31, 2009. 2008 2007 2011 .................... (27.9) (1.9) (8.6) (0.1) - Weighted- Weighted- . ,. Weighted-2012 .................... (29.1) (1.9) (8.8) (0.1)

Average. Average Average 2013 .................... (30.8) (1.9 ) (9.1) (0.1) Grant Date Grant Date Grant Date 2014 .................... (32.9) (1.9) (9.6) (0.1) Shares Fair Value Shares Fair Value , Shares Fair Value 2015-2019 .............. (203.3) (8.9) (52.7) (0.7) (InThousands) (InThousands) (In.Thousands)

Nonvested balance, Savings Plans beginning of year. 727.4 $20.86 984.2 $23.11- .933.4.. $20.82 We maintain a qualified 401(k) savings plan in Which most of our Granted ............ 83.5 18.33 38.7 25.46 .413.8, 26.76 employees participate. We match employees' contributions in cash Vested ............ (439.0) 19.43 (261.3). 28.11 (308.5) 20.53 Forfeited ........... (3.1:) 20.63 (34.2) 35.49 (54.5) .26.79 up to specified maximum limits. Our contributions to the plans are deposited with a trustee and invested at the direction of plan Nonvested balance,.

participants into one or more of the investment. alternatives we end of year ........ 368.8 21.98 727.4 20.86 984.2 23:11 provide under the plan. Our contributions totaled $6.5 million in 2009, $6.1 million in 2008 and $5.6 million in 2007. Total unrecognized compensation cost related to RSU'awards was

$2.6 million as of Decemnber 31, 2009. We expect to recognize Stock-Based Compensation Plans these costs over a remaining weighted-average period of 2.3 years.

We have a long-term incentive and share award plan (LTISA Plan), The total fair value of shares vested duringthe years ended which isa stock-based compensahon plan in which employees and December 31, 2009, 2008 and 2007, was $8.8 million, $6.2 million directors are eligible for awards. The LTISA Plan was implemenfed and $8.3 million, respectively. There were no modifications of as a means to attract, retain and motivate employees and directors. awards during the years ended December 31, 2009, 2008 or 2007 Under the LTISA Plan, we may grant awards in the form of RSU awards that can be settled in cash upon a change in control stock options, dividend equivalents, share appreciation rights, are classified- as temporary equity. As of December 31, 2009 and RSUs, performance shares and performance share units to plan 2008, we had temporary equity of $3.4 million on our consolidated participants. Up to five million shares of common stock may be balance sheets. If we.determine that it is probable that these awards granted under the LTISA Plan. As of December 31, 2009, awards will be settled in cash, the awards will be.reclassified as a liability:

of 3,901,718 shares of common stock had been made under the plan. Dividend equivalents, or the rights to receive cash.equal to the Stock options granted between 1998 and 2001 are completelyvested value of dividends paid on Westar Energy's common stock, accrue and expire 10 years from the date of grant. All 2,400 outstanding on the awarded RSUs. options are exercisable. There were no options exercised and 21,300 options were forfeited during the year ended December 31, 2009.

All stock-based compensation is measured at the grant date based We currently have no plans to.issue new stock option awards.'

on the fair value of the award and is recognized as an expense in the consolidated statement of income over the. requisite service Another component of the LTISA Plan is the Executive Stock for period. The table below shows compensation expense and income Compensation program, where, in the past, eligible employees tax benefits related to stock-based compensation arrangements were entitled to receive deferred stock in lieu of. current cash that are included in our net income. compensation. Although this plan was discontinued in 2001, dividends will continue to be paid to plan participants on their Year Ended December 31, 2009 2008 2007 outstanding plan balance until distribution. Plan participants were (In Thousands) awarded 7,106 shares of common stock for dividends in 2009, C6mpensation expense ..................... $5,080 $4,619 $ 5,735 5,283'shares in 2008 and 4,214 shares in 2007. Participants received Income tax benefits related to stock-based common stock distributions of 563 shares in 2009, 530 shares in compensation arrangements ............... 2,011 1,830 2,281 2008 and 505 shares in 2007.

Since 2002, we have used RSU awards exclusively for our stock- Cash retained as a result of excess tax benefits resulting from the tax based compensation awards. RSU awards are grants that entitle the deductions in excess of the related compensation cost recognized holder to receive shares of common stock as the awards vest..These in the financial statements is classified as cash flows from financing RSU awards are defined as nonvested shares and do not include activities in the consolidated statements of cash flows..

restrictions once the awards have vested. We measure the fair value 61

WESTAR ENERGY" I 2009 ANNUAL REPORT

12. WOLF CREEK EMPLOYEE BENEFIT PLANS 'Pension Benefits Post-retirement Benefits As of December 31, 2009 2008 2009 2008 Pension and Other Post-retirement Benefit Plans.

(Dollars InThousands)

As a co-owner of Wolf Creek, KGE is indirectly responsible for 47% of the liabilities and expenses associated with the Wolf Creek Pension Plans With a Projected Benefit Obligation InExcess

.pension and other post-retirement benefit plans. KGE accrues of Plan Assets:

its 47% share of the Wolf Creek cost of pension and other post- Projected benefit retirement benefits during the years an employee provides service. obligation ............. $111,033 $ 99,536 $ - $ -

The following tables summarize the net periodic costs for KGE's Accumulated benefit 47% share of the Wolf Creek pension and other post-retirement obligation .............. 90,157 77,197 - -

benefit plans. Fair value of plan assets .... 62,516 45,201 - -

Pension Plans With an Accumulated PensionBenefits ..Post-retirement Benefits Benefit Obligation InExcess of Plan Assets:

As'of December 31, 2009 2008 2009 2008 Projected benefit (InThousands) obligation .............. $111,033 $ 99,536 $ -- $ -

Change inBenefit Obligation: Accumulated benefit Benefit obligation, ' obligation .............. 90,157 77,197 - -

beginning of year .......... $ 99,536 $ 89,846 $ 8,852 $ 8,596 Fair value of plan assets .... 62,516 45,201 - -

Effect of eliminating early " Post-retirement Plans With an measurement date ...... 574 Accumulated Post-retirement Service cost ............ 3,643 3,421 188 203 Benefit Obligation In Excess Interest cost............ 6,401, 5,680 538 517 of Plan Assets:

Plan participants' contributions.. 439 356 Accumulated post-retirement Benefits paid ............... (2,273) (2,135) (1,151) (1,182) 'benefit obligation.: ....... $ " - $ . - $ 9,574 $ 8,852 Actuarial losses.......... 3,726 2,150 708 362 Weighted-Average Actuarial * ..

-Assumptions used to.Determine ,

Benefit obligation, Net Periodic Benefit Obligation:

end of year ............. $111,033 $ 99,536 $ 9,574 $ ,8,8"52 Discount rate ............. 6.05% 6.15% .5.50% 6.05%

Change inPlan Assets: Compensation rate increase . 4.00% - -, .4.00%. . .

Fair value of plan assets, beginning of year ....... $ 45,201, $ 54,992 .$ .. -- $ .- During 2008, Wolf Creek changead the. measurement date for its Effect of eliminating early pension and othei'post-retirement benefit plans from December 1 mieasurement date ......... - 226 - - to De'cember 31. As a result,.we decreased retained earnings by Actual return on plan assets " 12,109 (14,656) - -

$0.5 millioni and regulatory assets by $0.1 million in 2008.

Employer contribution ........ 7,310 6,608 ,:- -

Benefits paid. .......... (2,104) (1,969) Wolf Creek'uses an interest rate yield curve that is constructed based Fair value of plan assets, on the yields on over 500 high-quality, non-callable corporate bonds end of year... $ 62,516 $ 45,201 $ - $ " - with maturities between zero and 30 years. A theoretical spot rate Funded status, end of year ..... $ (48,517) $ (54,335) $ .(9,574) $ (8,852) curve constructed from this yield curve is then used to discount the annual benefit cash flowsof Wolf Creek's pension plan and develop Amounts Recognized in the Balance' Sheets Consist of:

a single-point discount rate matching-the plan's payout structure.

Current liability .............. $ (253) $ '(251) $ (674) $ (612) The prior service cost is amortized on a straight-line basis over the Noncurrent liability ...... .... (48,264) (54,084) (8,900) (8,240) average future service, of the active employees (plan participants)

Net amount recognized ...... $ (48,517) $ (54,335) $ (9,574) $ (8,852) benefiting under the plan at the time of the amendment. The net Amounts Recognized in Regulatory actuarial loss subject to amortization is amortized on a straight-line Assets Consist 'of: basis over the average future service of active plan participants benefit-Net actuarial loss ............ $ 34,857 '$ 40,802 $ 3,709 $ -3,258 ing under the plan without application of an amortization corridor.

,,Prior service cost ............. 76 119 -- :, -

Transition obligation ......... 109 . 166 173 . 230 Net amount recognized ...... $ 35,042 $ 41,087 $ 3,882 $ 3,488

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WESTAR ENERGY I 2009 ANNUAL REPORT Pension Benefits In January 2007, Wolf Creek Nuclear Operating Corporation (WCNOC) offered a selective retirement incentive to employees.

Year Ended December 31, 2009 2008 2007 The incentive increased the pension benefit for eligible employees (Dollars inThousands) who elected retirement. This resulted in $1.5 million in additional Components of Net Periodic Cost: pension benefits and $0.3 million in additional post-retirement Service cost .......................... $ 3,643 $ 3,421 $ 3,436 benefits for the year ended December 31,,2007.

Interest cost ......................... 6,401 5,680 4,696 Expected return on plan assets ........... (4,976) (4,709) (4,101) The estimated amounts that will be amortized from regulatory Amortization of unrecognized:

assets into net periodic cost in 2010 are as follows:

Transition obligation, net .............. 57 57 57 Prior service costs ................... 43 57 57 Other Actuarial loss, net ................... 2,538 1,696 1,855 Pension Post-retirement Curtailments, settlements and special Benefits Benefits termination benefits ................. - - 1,486 (InThousands)

Net periodic cost .................... $ 7,706 $ 6,202 $ 7,486 Actuarial loss ................................... $ 2,425 $ 277 Prior service cost ................................. 29 -

Other Changes in Plan Assets and Benefit Transition obligation .............................. 57 . 58 Obligations Recognized in Regulatory Assets:

Current year actuarial (gain)/loss ........ $(3,407) $21,517 $ 3,578 Total ..................... ................... $ 2,5 11 $ 33 5 Amortization of actuarial loss .......... (2,538) (1,696) (1,855)

Current year prior service cost .......... - - 34 The expected long-term rate of return on plan assets is based on Amortization of prior service cost ....... (43) (57) (57)

Amortization of transition obligation ..... (57) (57) (57) historical and projected rates of return for current and planned asset classes in the plans' investment portfolio. Assumed projected rates Total recognized in regulatory assets ..... $(6,045) $19,707 $ . 1,643 of return for each asset class were selected after analyzing long-Total recognized in net periodic cost term historical experience and future expectations of the volatility and regulatory assets ............... $ 1,661 $25,909 $ 9,129 of the various asset classes. Based on target asset allocations for Weighted-Average Actuarial Assumptions each asset class, the overall expected rate of return for the portfolio used to Determine Net Periodic Cost: was developed, adjusted for historical and expected experience Discount rate ................... 6.15% 6.15% 5.70% of active portfolio management results compared to benchmark Expected long-term return on returns and for the effect of expenses paid from plan assets.

plan assets ....................... 800% 8.25% 8.25%

Compensation rate increase ........... 4.00% 4.00% 3.25% For measurement purposes, the assumed annual health care cost growth rates were as follows.

Post-retirement Benefits As of December 31, 2009 2008 Year Ended December 31, 2009 2008 . 2007 Health care cost trend rate assumed for next year ............ 8.0% 7.5%

(Dollars inThousands) Rate to which the cost trend rate is assumed Components of Net Periodic Cost: to decline (the ultimate trend rate)................ 5.0% 5.0%

Service cost ....................... $ 188 $ 203 $ 234 Year that the rate reaches the ultimate trend rate ............ 2018 2014 Interest cost ......................... 538 517 435 Expected return on plan assets ........... . - - - projected benefit The health care cost trend rate affects the Amortization of unrecognized: obligation. A 1% change in assumed health care cost growth rates Transition obligation, net .............. 58 58 58 would have effects shown in the following table.

Prior service costs ...............

Actuarial loss, net ................... 257 231 191 One-Percentage- One-Percentage-Curtailments, settlements and special Point Increase Point Decrease termination benefits ................. - - 259 (InThousands)

Net periodic cost ..................... $ 1',041 $ 1,009 $ 1,177 Effect on total of service and interest cost ............ $ (7) $ 6 Effect on the present value of the projected Other Changes in Plan Assets and Benefit benefit obligation ...... .................... (64) 58 Obligations Recognized in Regulatory Assets:

Current year actuarial (gain)/loss ........ $ 708 $ 362 $ 786 Amortization of actuarial loss ... ....... (257) (231) (191) Plan Assets Current year prior service cost .......... -

Wolf Creek does not utilize a separate investment trust for the Amortization of prior service cost ....... - - -

purpose of funding other post-retirement benefits as it does for Amortization of transition obligation ..... (58) (58) (58) its pension plan. The Wolf Creek pension plan investment strategy Total recognized in regulatory assets ..... $ 393 $ 73 $ 537 supports the objective of the fund, which is to earn the highest Total recognized in net periodic cost possible return on plan assets consistent with a reasonable and and regulatory assets .............. $ 1,434 $ 1,082 $ 1,714 prudent level of risk. Investments are diversified across classes, Weighted-Average Actuarial Assumptions sectors and manager style to maximize returns and minimize the used to Determine Net Periodic Cost: risk of large losses. Wolf Creek delegates investment management Discount rate ...................... 6.05% 6.05% 5.80% to specialists in each asset class and, where appropriate, provides Expected long-term return on the investment manager with specific guidelines, which include plan assets ....................... - - -

allowable and/or prohibited investment types. Prohibited Compensation rate increase ........... . -- --

investments include investments in the equity or debt securities of the companies that collectively own Wolf Creek or companies that 63-

WESTAR ENERGY I 2009 ANNUAL REPORT control such companies, which includes our and KGE securities. The following table' provides a reconciliation of KGE's 47% share Wolf Creek has also established restrictions for certain classes of of Wolf Creek's pension plan assets measured at fair value using plan assets including that international equity securities should not significant level 3 inputs for the year ended December 31, 2009.

exceed 25% of total plan assets, no more than 5% of the market Real Estate value of the plan assets should be invested in the common stock of Securities one corporation and the equity investment in any one corporation (InThousands) should not exceed 1% of its outstanding common stock.

Balance as of January 1,2009 ý .................................. S -

The target allocations for Wolf Creek's pension plan assets are 20% Actual gain (loss) on plan assets:

Relating to assets still held at the reporting date .................... (370) to international equity securities, 45% to domestic-equity securities, Relating to assets sold during the period .......................... 6 25% to debt securities, 5% to real estate securities and 5% to Purchases, issuances and settlements . ............ ........... ' 2,780 commodity investments. The investments in both international Balance as of December 31, 2009 ................................ $ 2,416 and domestic equity securities include investments in large-, mid-and small-cap companies, private equity funds and investment funds with underlying investments similar to those previously Cash Flows mentioned. The investments in debt securities include core and The following table shows the expected cash flows for KGE's 47%

high yield bonds. Core bonds include funds invested in investment share of Wolf Creek's pension and other post-retirement benefit grade debt securities of corporate entities, obligations of U.S. and plans for future years.

foreign governments and their agencies, and private debt securities.

Pension Benefits Post-retirement Benefits High yield bonds include a fund with underlying investments in non-investment grade debt securities of corporate entities, private To/(From) To/(From)

To/(From) Company To/(From) Company placements and bank debt. Real estate securities include funds Expected Cash Flows Trust Assets Trust Assets invested in commercial and residential real estate properties while (InMillions) commodity, investments include funds invested in commodity-Expected tontributions:

related instruments. 2010 .................... $ 4.1 $ 0.2 $ - $ 0.7 Expected benefit payments:

Wolf Creek's investmefhts in equity, debt and commodity instru-2010 .................... $ (2.4) $(0.2) $ - $(0.7) ments are recorded at fair value using quoted market prices or 2011 .................... (2.7) (0.2) - (0.7) valuation models utilizing observable market data when available. 2012 .................... (3.0) (0.2) - (0.7)

A portion of the investments is comprised of real estate securities 2013 .................... (3.4) (0.2) - (0.7) that require significant unobservable market information to 2014 .................... (3.9) (0.2) - (0.7) measure. the fair value of the investments. Real estate securities are 2015-2019 ... :.......... (28.4) ' (1.1) - (3.8) measured at fair value using market discount rates, projected cash flows and the estimated value into perpetuity. Savings Plan Wolf Creek maintains a qualified 401(k) savings plan in which most Similar to other assets measured at fair value, GAAP establishes a of its employees participate. They match employees' contributions hierarchal framework for disclosing the transparency of the inputs in cash up to specified maximum limits. Wolf Creek's contributions utilized in measuring pension and other post-retirement benefit to the plan are deposited with a trustee and invested at the direction plan assets at fair value. See Note 4, "Financial and Derivative of plan participants into one or more of the investment alternatives Instruments, Trading Securities, Energy Marketing and Risk provided under the plan. KGE's portion of the expense associated Management,"for a description of the hierarchal framework.

with Wolf Creek's matching contributions was $1.1 million in 2009, The following table provides the fair value of KGE's 47% share of $1.0 million in 2008 and $0.9 million in 2007 Wolf Creek's pension plan assets and their corresponding level of hierarchy as of December 31, 2009. 13. COMMITMENTS AND CONTINGENCIES As of December 31, 2009 Level 1 Level 2 Level 3 Total Purchase Orders and Contracts (In Thousands)

As part of. our ongoing operations and capital expenditure Assets:

Domestic equity .............. $ 24,947 $ 3,451 $ '--- $ 28,398 program, we have purchase orders and contracts, excluding fuel, International equity ........... 8,021 4,458 - 12,479 which is discussed below under "- Purchased Power and Fuel Core bonds .................. - 11,864 - 11,864 Commitments," that had an unexpended balance of approximately High-yield bonds . ........... 3,018 . - -- 3,018 $516.1 million as of December 31, 2009, of which $186.7 million

-Real estate securities ............ - - 2,416 2,416 has been committed. The $186.7 million commitment relates to Commodities ................ - 3,594 - 3,594 purchase obligations issuedaand outstanding at year-end.

Cash equivalents .............. 1 746 - 747 Total Assets Measured at Fair Value . $ 35,987 $ 24,113 $ 2,416 $ 62,516 The yearly detail of the aggregate amount of required payments as of December 31, 2009, was as follows.

Committed Amount

. (InThousands) 2 0 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. . ... . .. .. .. .. . .. $ 113 ,9 4 6 2 0 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. . .. .. .. .. .. .. . .. 3 4 ,0 2 1 2 0 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. . ... . .. .. .. .. . .. 2 4 ,0 6 3-Thereafter . .. . . .. . . .. . .. . . . .. . .. . . . .. . .. .. .. . . .. . . .. . . .. . . .. 14 ,6 60 Total am ount com mitted ..................................... $ 186,690 h 64

WESTAR ENERGY 1 2009 ANNUAL REPORT Clean Air Act substantially the same claims. On January 25, 2010, we announced We must comply with the Clean. Air Act, state laws and imple- a settlement of the lawsuit. The settlemernt was filed with.the court, menting regulations that impose, among other things, limitations seeking its approval. .The settlement. provides for us to install a' on pollutants, generated during our operations, including sulfur selective catalytic reduction (SCR) system on one of the three dioxide (SO2), particulate matter and nitrogen oxides (NOx). In Jeffrey Energy Center coal units by the end of 2014. We have not addition, we must comply with the provisions of the Clean Air Act yet engineered' this project; however, our preliminary estimate- of Amendments of.1990 that require a reductionin SO2 and NOx. We the cost of this SCR is approximately $200.0 million. Depending have' installed continuous monitoring and reporting equipment in on the NOx emission reductions attained by the single SCR and order to meet these requirements. attainable through the installation of other controls on the .other two Jeffrey Energy'Center coal units, a second' S'CR system would Environmental Projects be installed on another Jeffrey Energy Center coal unit by the end

.We will dontinue to make significant capital expenditures'at our of 2016, if needed to meet NOx reduction targets. Recovery of costs power plants to reduce undesirable emissions:The amount of these to install these systems is subject to the approval of our regulators.

expenditures could materially ihcrease or 'decrease depernding We believe these costs are appropriate for inclusion in the prices on the timing and nature of required investments, the specific we are allowed to charge our customers...We will also invest outcomes resulting from interpretation of existing regulations, $5.0 million over six years. in environmental mitigation projects hew regulations, legislation imd the 'manner in which we operate which we will own and $1.0 million in environmental mitigation the planits. In addition to' the capital investment, in the event we projects that will be ownedby a qualifying third party. We will also install new equipment, such, equipment may cause us to 'incur pay a $3:0 million civil penalty. Accordingly, we have recorded' a significant increases in annual operating and maintenanceexpdhse $.4.0Qmillion liability pursuant tothe terms of the settlement. We and may reduce the'net-iýroductibn, -reliability and availability of expect the court to make a decision in 2010 fololwirng the expiration the plants. The degree to which we will need to reduce 6missihns of a period for public comments on March 1, 2010; If the court does and the timing of when such emissions controls may be~required is not approve the settlement, and the lawsuit proceeds to. trial, uncertain. Additionally, our ability to access capital markets aind the decision in favor of the DOJ and EPA could requirelus to update or availability of materials, equipment anid contractors may iffect the install additional emissions controls at Jeffrey. Energy Center, and timing and ultimate amount of such capital investments. the additional controls could be more extensive than. those required The environmental cost recovery rider allows for.the more timely by the current settlement. Additionally, we could be required to inclusion in retail prices the costs of capital expenditures associated update or install emissions controls at our other coal-fired plants, with environmental improvements, including those required by the pay fines or penalties or take other remedial 'action. Our ultimate Federal.Clean Air Act. In order to change our prices to recognize costs to r~solve the lawsuit could be material and we would expect increased operating and maintenance costs, however, we must still to incur substantial legal fees and expenses related to the defense file a general rate case with the KCCI of the lawsuit. We are not able to estimate the possible loss or range of lbss if the court were to not approve the settlemnent.

We have an agreement with the Kansas Department of Health and Environment (KDHE) to implement a plan to install new FERC Investigation equipment to reduce regulated emissions from our generating fleet' We coritinue '6' respond to a nfon-public investigation by FERC of The, projects are designed .to) meet requirements of the Clean Air our use of transmission service between July 2006 and' February Visibility Rule and significantly reduce plant emissions. 2008. On May 7,2009, FERC staff advised us that it had preliminarily concluded that we improperlyused secondary network transmission' While an earlier issued Environmental Protection 'Agency (EPA) service to facilitate off-system wholesale power sales in violation of rule on mercury was vacated'by a U.S. Court of Appeals ruling,.the applicable FERC orders and Southwest Power Pool (SPP) tariffs.

Obama administration has indicated that it intends to enact stricter, technology-based regulations on mercury emissions. Our costs to FERC staff alleged we received $14.3 million of unjust profits comply with mercury emission requirements could be' material. through such activities. Wesent a response to FERC staff disputing both the legal basis for its allegations and their factual underpinnings.

EPA Lawsuit Based on our response, FERC staff revised its preliminary con-Under Section. 114(a) of the Federal Clean Air Act,; the EPA is clusions to allege that we received $3.0 million of unjust profits and conducting investigations. hationwide to determine Whether failed to pay $3.2 million to the' SPP for transmission service: We modifications at coal-fired power plants. are subject to the New continue to believe that our' use of transmission service was. in.

Source .Review permitting program .or New Source :Performance compliance with FERC orders and SPP.tariffs. We are~now reviewing Standards. These investigations focus on whether. projects at coal- FERC staff's revised'preliminary conclusions and plan to submit a fired plants were routine maintenance or whether the projects were response in the near future. We-are unable to predict the outcome substantial modifications that could reasonably have been expected ofthis investigation or its irmpact on our consolidated financial to result in a significant, net increase in emissions.,TheNew Source results, but an adverse outcome'could iesult 'in refunds and fines, Review program requires companies to obtain permits and, if the amounts of which could be material, and potentially could alter necessary, install control- equipment to address emissions when the.manner in which we are permitted to buy and sell energy and making a major modification or a change in operation if either is use transmission service. .

expected to cause a significant net increase in emissions.

Manufactured Gas Sites On january 22, 2004, the 'EPA 6otified us that certain p~fjefts We have been identified as 'being' partially responsible for completed at Jeffrey Energy Center'violited certain requirements remediating a number of former manufactured gas sites'located in of the New Source Review program. On February 4, 2009, the Kansas and Missouri. We and the KDHE enttered into a consent Department of Justice (DOJ), on behalf of the EPA, filed a lawsuit- agreement governing all future work at the Kansas sites. Under against us in U.S. District Court in the District of Kansas asserting the terms of the consent agreement, we agreed to investigate and, 65-

WESTAR ENERGY I 2009 ANNUAL REPORT if necessary, remediate these sites. .Pursuant to an environmental Storage of Spent Nuclear Fuel indemnity agreement with ONEOK, Inc. (ONEOK), the current Under the Nuclear Waste Policy Act of 1982, the Department of owner ,of some of the sites, ONEOK assumed total liability for Energy (DOE) is responsible for.the permanent disposal of spent remediation of seven sites and we share liability for remediation nuclear fuel. Wolf Creek pays into. a federal Nuclear Waste Fund with. ONEOK for five sites. Our total liability for the five shared administered by the DOE a 'quarterly fee for the future disposal of sites is capped at $3.8 million. We have sole responsibility for spent nuclear fuel. Our share of the fee, calculated as one-tenth of remediatioh with respect to three sites. a cent for each kilowatt-hour, of net nuclear generation delivered to customers, Was $3.7 million in 2009, $3.5 million in 2008 and Our liability 'for the former manufactured gas sites identified

$4.4 million in 2007. We include these costs in fuel~and purchased in Missouri is limited to $75 million by. the terms of an environ-power expense...

mental indemnity agreement with the purchaser of our former Missouri assets. The NRC continues, its technical licensing review of a DOE application for authority to construct a national repository for the' Nuclear Decommissioning disposal of spent nuclear fuel and high-level radioactive waste at Nuclear decommissioning is a nuclear industry term for the Yucca Mountain, Nevada. In February 2010, the DOE announced its permanent shutdown of a nuclear power plant and the removal intent to withdraw the application, which would end the licensing of radioactive components in accordance with Nuclear Regulatory process. Wolf Creek has an on-site storage facility designed to hold Commission (NRC) requirements. The NRC will' terminate a all spent fuel generated at the plant through 2025 and believes it will plant's license and release the property for unrestricted use when be able to expand on-site storage as needed past 2025. We. cannot

'a company has reduced the residual radioactivity of a nuclear plant predict when, or-if, an alternative disposal site will be available to to a level mandated by the NRC.The NRC requires companies with receive Wolf Creek's spent nuclear fuel and will continue to monitor ndclear plants to prepare forrhal financial plans to fund nuclear thisactivity.

• decommissioning4.These plans are designed so that sufficient funds required for nuclear decommissioning will be accumulated prior to Nuclear Insurance the expiration of the license of the related nuclear power plant. Wolf We maintain nuclear insur'ahce for Wolf Creek in four areas: liability, Creek files a nuclear decommissioning site study with the KCC worker radiation, property and accidental outage. These policies every three years. contain certain industry standard exclusions, including, but not The .KCC reviews nuclear decommissioning plans in two phases. limited to, ordinary wear and tear and war. The nuclear liability and Phase one is the approval of the revised nuclear decommissioning property insurance programs subscribed to by members of the nuclear study including the estimated costs to .decommission the plant. power generating industry no longer include industry aggregate Phase two invplves the review and approval by the. KCC of a limits for non-certified acts, as defined by the Terrorism Risk "funding schedule" prepared by the owner of the nuclear facility Insurance Act, of terrorism-related losses, including replacement detailing how it plans to fund the future-year dollar amountof its power costs. An industry aggregate limit of $3.2 billion' plus any reinsurance recoverable by Nuclear Electric Insurance Limited pro rata share of the plant.

(NEIL), our insurance provider, exists for property claims, including In August 2009, the KCC approved Wolf Creek's' updated nuclear accidental outage power costs, for acts of terrorism affecting Wolf decommissioning site study. Based on the study, our share of Creek or any' other nuclear' energy, facility property policy within decommissioning costs, including decontaminati6n, dismantling twelve months from the date of the first act. These limits are the and site festoration, is estimated to be $279.0 million. This amount maximum amount to be paid to members who sustain losses or compares to the prior site study estimate of $243.3 million. The site damages from these types of. terrorist acts. In addition, industry-study cost estimate represents the estimate to decommission Wolf wide retrospective assessment programs (discussed below) can Creek as of the site study year. The actual nuclear decommissioning apply once these insurance programs have been exhausted.

costs may vary from the estimates because of changes in regulations and technologies as well as changes in costs for labor, materials Nuclear Liability Insurance and equipment. Pursuant to the Price-Anderson Act, which has been reauthorized through December 31, 2025, by the Energy Policy Act of 2005, we In the prices we charge, we are allowed to recover nuclear decom-are required to insure against public liability claims resulting from missioning costs over the life of Wolf Creek, which is through nuclear incidents to the full limit of public liability, which is currently 2045. The NRC requires that funds sufficient to meet nuclear approximately $12.5 billion. This limit of liability consists of the maxi-decommissioning obligations be held in trust. We believe that the mum available commercial insurance of $300.0 million,'"and the KCC approved'funding level will also be sufficient to meet the NRC remaining $12.2 billion is provided through mandatory participation requirement. Our consolidated financial results would be materially in an industry-wide retrospective assessment program. The maxi-adversely affected if we were not allowed to recover in our prices mum available commercial insurance will increase to $375.0 million the full amount of the.funding requirement.

in 2010. Under this retrospective 'assessment program, the owners We recovered in ofir prices and deposited in an external trust fund of Wolf Creek can be assessed a total of $1175 million (our shareJis for nuclear decommis sioning approximately $2.9 million in each of $55.2 million), payable at no more than $175 million (our share is 2009, 2008 and 2007 We record our investment in the nuclear $8.2 million) per incident per year, per reactor. Both the total and decommissioning trust fund at fair value. The, fair value approxi- yearly assessment is subject to an inflation adjustment based on the mated $112.3 million as of December 31, 2009, and $85.6 million as Consumer Price Index and applicable premium taxes. This assess-of December 31, 2008. ment also applies in excess of our worker radiation claims insurance.

-66

WESTAR ENERGY I 2009 ANNUAL REPORT The next scheduled inflation adjustment is scheduled for August 14. ASSET RETIREMENT OBLIGATIONS 2013. In addition, Congress could impose additional revenue-raising measures to pay.claims. Legal Liability We have recognized legal obligations associated with the disposal Nuclear Property Insurance of long-lived assets that result from the acquisition,) construction, The owners of Wolf Creek carry decontamination liability, premature development or normal op'eration of such assets. The recording of nuclear decommissioning liability and property damage insurance AROs. for regulated operations has no income statdment impact for Wolf Creek totaling approximately $2.8 billion (our share is due to the deferral of the adjustments through the 'establishment

$1.3 billion). This insurance is provided by NEIL. In the event of an of a regulatoty asset.

accident, insurance proceeds must first be used for reactor stabiliza-tion and site decontamination in accordance with a plan mandated We initially recorded AROs at fair value for the. estimated by the NRC. Our share of any remaining proceeds can be used to cost to decommission Wolf Creek (our 47% share), dispose of pay for property damage, decontamination expenses or, if certain asbestos insulating material at our power plants, remediate ash requirements are met, including nuclear decommissioning the disposal.ponds and dispose of polychlorinated biphenyl (PCB)-

plant, toward a shortfall in the nuclear decommissioning trust fund. contaminated oil.

The following table summarizes our legal AROs included on our Accidental Nuclear Outage Insurance consolidated balance sheets in long-term liabilities.

The owners also carry additional insurance with NEIL to cover costs of replacement power and, other extra expenses incurred As of December 31, 2009 2008 during a prolonged outage resulting from accidental property (InThousands) damage at Wolf Creek. If significant losses were incurred at any Beginning ARO " ... . $ 95,083 $ 88,711 of the nuclear plants insured under the NEIL policies, we may be Liabilities incurred ............................... 1,289 1,143 subject to retrospective assessments under the current policies of Liabilities settled ... ....... .......... .......... . (1,922 ) (195) approximately $25.2 million (our share is $11.9 million). Accretidn expense ........... ..... ........ ... . 4,727 ' 5,424 Increase in inuclear decommissioninq ARO liability.. * ... 20,342 -

Although we maintain various insurance policies to provide Ending ARO .... ............. ........... $119,519 $ 95,083 coverage for potential losses and liabilities resulting from an accident or an extended outage, our insurance coverage May not be adequate to cover the costs-that could result from a catastrophic In 2009, Wolf Creek filed an updated nuclear 'decommissioning accident or extended outage at Wolf Creek. Any substantial lpsses study with the KCC. As a result of the study, we recorded a not covered by insurance, to the extent not recoverable in our $20.3 million increase in our ARO to reflect revisions .to the prices, would have a material adverse effect on our consolidated estimated costs to decommission Wolf Creek.

financial results. Conditional ARO refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement Purchased Power and Fuel Commitments are conditional on a future event that may or may not be Within To supply a portion of the fuel requiremnents for Our generating the control of the entity. We determined that our conditional AROs plants, WCNOC has entered into various commitments to obtain inciud'e the disposal of asbestos insulating material at our power nuclear fuel and we have entered into various commitments to plants, the remediation of ash disposal ponds and the disposal of obtain coal and natural gas. Some of these contracts contain provisions PCB-contaminated oil.

for pric6 escalation and minimum purchase commitments. As of December 31, 2009, our share of Wolf Creek's nuclear fuel com- The amount of the retirement obligation related to asbestos mitments was approximately $54'2 million for uranium concentrates disposal was recorded as of 1990, the date when the EPA published expiring in 2016, $8.2 million for conversion expiring in 2016, the "National Emission Standards for Hazardous Air Pollutants:

$135.3 million for enrichment expiring in 2024 and $476 million for Asbestos NESHAP Revision; Final Rule" fabrication expiring in 2024. We operate, as permitted by the state of Kansas, ash landfills at As of December 31, 2009, our coal and coal transportation contract several of our power plants. The ash landfills retirement obligation commitments in 2009 dollars under the remaining terms of the was determined based upon the date each landfill was originally contracts were approximately $1.3 billion. The two largest contracts placed in service.

expire in 2013 and 2020, with the remaining contracts expiring at PCB-contaminated oil is contained within company electrical various times prior to the end of 2013. equipment, primarily transformers. The PCB retirement obligation As' of December 31, 2009, our natural gas transportation com- was determined based upon the PCB regulations that originally mitments in 2009 dollars under the remaining terms of the contracts became effective in 1978.

were approximately $184.2 million. The natural gas transportation Non-Legal Liability-- Cost of Removal contracts provide firm service to several of our natural gas burning facilities and expire at various times through 2030. We recover in our prices the. costs -to dispose of utility plant assets that do not represenit legal retirement obligations. As of During 2007, we entered into purchase power agreements with the December 31,2009 and 2008; we had $68.1 million and $50.1 million, owners of two separate wind generation facilities located in Kansas respectively, in amounts collected, but not yet spent, for removal with a combined capacity of 146 MW. The agreements have a term costs classified as a regulatory liability. The net amount related of 20 years and provide for our receipt and purchase of the energy to non-legal retirement costs can fluctuate based on amounts produced at a fixed price per unit of output. We estimate that our recovered in our prices compared to removal costs incurred.

annual cost for energy purchased from these wind generation facilities will be approximately $22.0 million. One of the facilities was placed in service in December 2008 and the other one was placed in service in early 2009.

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WESTAR ENERGY I 2009 ANNUAL REPORT

15. LEGAL PROCEEDINGS ' .

• Common Stock Issuance On May 29,2008, Westar Energy entered into an underwriting agree-In late 2002, two of our. executive officers resigned or were placed ment relating to the offer and sale of 6.0 million shares of its common on administrative leave from their positions. Our board of directors stock. On June 4, 2008, Westar Energy issued all 6.0 million shares determined that their employment..was terminated for cause. In and received $140.6 million in total proceeds, net of underwriting June 2003, we filed a demand for arbitration with the American discounts -and fees related to the offering.

Arbitration Association asserting claims, against them arising out of their previous .employment and seeking to avoid payment On November 15, 2007, Westar Energy entered into a forward sale of compensation not yet paid to them under various plans and agreement with a bank; as forward purchaser, relating to 8.2 million agreements. They filed counterclaims against us alleging substantial shares of its ,common stock. The forward sale agreement provided damages related to the termination of their employment: As of for the sale ofWestar Energy's common stock within approximately December 31, 2009, and December 31, 2008, we had accrued twelve months at a stated settlement price. In connection with the liabilities of $776 million and $74.9 million, respectively, for com- forward sale agreement, the bank borrowed an equal number of pensation not yet paid to them, and $6.8 million for each respective shares of Westar Energy's common stock from stock lenders and period for legal fees and expenses they have incurred. The sold the borrowed shares to another bank under an underwriting arbitration has been stayed pending final resolution of criminal agreement among Westar Energy and the banks. The underwriters charges file'd by the United States Attorney's Office agaliist them in subsequently offered the borrowed shares to the public at a price U.S. District Court in the District of Kansas. We intend to vigorously per share of $25.25.

defend against the. counterclaims they filed in the arbitration. We are unable to predict the ultirmate impact of this matter on our On December 28,2007, Westar Energy delivered 3.1 million newly consolidated financial results. issued shares of its common stock to a bank and received proceeds.

of $75.0 million as partial settlement of the forward sale agreemefnt.

We and our subsidiaries are involved in ,various other' legal, Additionally, on February 7,12008, Westar Energy delivered 2.1 million environmental and regulatory proceedings. We believe *that shares and received proceeds of.$50.0 'millionas partial. settlement adequate provisions have been made. and accordingly believe that of the forward sale agreement. On June 30, 2008, Westar Energy the ultimate disposition of such matters will not have a material completed the forward sale agreement by delivering 3.0 million adverse effect on our consolidated financial results. shares and receiving proceeds of.$73.0 million.

See alsoNote 13,"Commitments and Contingencies." On August 24, 2007, Westar Energy'entered into a Sales Agency Financing Agreement with a bank. Under the terms of the agree-ment, Westar Etiergy may offer and sell shaies of its common stock

16. COMMON AND'PREFERRED STOCK from tirh'e to time through the bank, as agent, up to an aggregate Activity in Westar Energy's stock accounts for each of the .three of $200.0 million for a period of no more than three years. Westar years ended December 31 is as follows: . " Energy will pay the bank 'a commission equal to 1% of the sales price of all shares sold under the agreement. During 2007 Westar Cumulative '.

Energy sold 0,8 million share'.of common stock through the bank preferred ' Common stock shares stock shares for $20.0 million and rreceived $19.8 million in proceeds. net of Balance at December 31, 2006... 214,363 *

'................... 87,394,886" commission.. During 2008 Westar Energy sold 1.1 million shares of comm6n stock through th6 bank' for $26.9 million and received Issuance of common stock. . - 8,068,294 $26.7 million in proceeds net of commission. Westar Energy did Balance at December 31, 2007,: .............. .. 214,363 95,463,180 not sell any shares of.commnon stock under this agreement during Issuance of common stock . I. .- 12,847,955 2009. In January and February 2010, Westar Energy sold 1.2 million shares of common stock *through the bank for $25.0 million.

Balance at December 31, 2008 ...................... 214,363 108,311,135 On April 12, 2007, Westar Energy entered into a Sales Agency Issuance of common stock ........................... - 760,865 Financing Agreement with the same bank. As of July' 12, 2007, Balance at December 31, 2009 ..................... 214,363 109,072,000 Westar Energy had sold 3.7 million shares of its common. stock for

$100.0 million pursuant to the agreement. Westar Energy received Westar Energy's articles of incorporation, as amehded, provide for $99.0 million in proceeds net of a commission.

150,000,000 authorized shares of common stock. As of December 31, Westar Energy used the proceeds from the issuance Of common 2009, we had 109,072,000 shares issued and outstanding.

stock to repay borrowings under its revolving credit facility, with Westar Energy has a direct stock purchase.plan (DSPP). Shares those borrowed amounts principally related to our investments sold pursuant to the DSPP may be either original issue shares in. capital equipment, as well, as for working capital arid general or shares purchased in the open market. During 2009, a total of corporate purposes.

760,865 shares were issued by Westar Energy through 'the DSPP and other stock-based plans operated under the 1996 LTISA Plan.

As of December 31, 2009, a total of 3,196,816 shares were available under the DSPP registration statement. '

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WESTAR ENERGY'.) 2009 ANNUAL REPORT Preferred Stock Not Subject to Mandatory Redemption 17. LEASES Westar Energy's cumulative preferred stock is redeemable in whole or in part on 30 to 60 days' notice at our option. The table below Operating Leases shows our redemption amount for all series of preferred stock not .We lease office buildings, computer equipment, vehicles, rail cars, a subject to mandatory redemption as of December 31, 2009. generating facility and other property and equipment. These leases have various terms *andexpiration dates ranging from one to 20 years.

-- Total Principal Call Cost In determining lease expense, we recognize the effects of scheduled Rate Shares Outstanding Price Premium to Redeem rent increases on a straight-line basis over the minimum lease term.

(Dollars in Thousands)

The rental expense associated with the La Cygne. unit 2 operating 4.500% 121,613 $12,161 108.00% $ 973 $13,134 lease includes an offset for the amortization of the. deferred gain on 4.250% 54,970 5,497 101.50% 82 .' .5,579 5.000% 37,780 3,778 102.00% .76" 3,854 the sale-leaseback. The rental expense and estimated commitments are as follows for the La Cygne unit 2 lease and other operating leases.

$21,436 $1,131 $22,567 Total La Cygne Unit-2 Operating The provisions of Westar Energy's articles of incorporation, as Year Ended December 31,' Leaserl '- Leases amended, contain restrictions on the payment of dividends or (InThousands) the making of other distributions on its common stock While any Rental expense:

preferred shares remain outstanding unless certain capitalization 2007 . $ -18,069 $ 35,267 ratios and other conditions are met. If the ratio of the capital 2008 .............  ! .......... ....... ........ 18,069 38,870 represented byWestar Energy's common stock, including premiums 2009 " 18,069 38,096 on its capital stock and its surplus accounts, to its total capital and Future commitments:

its surplus.accounts at the end of the second month immediately 2010 . .. ................................ . $ 33,04 1 $ 49,18 1 2011 . .. .. 33,122 48,450 preceding the date of the proposed payment of dividends, adjusted 2012 ...... ... .......  : 33,209 50,453 to reflect the proposed payment (capitalization ratio), will be less 2013 ........... .......................... 33,350 . 46,698 than 20%, then the payment of the dividends on its common stock, 2014 ..... 33,454 43,195 including the proposed payment, during the 12-month period Thereafter ................................ . 222,671 249,592 ending with and including the date of the proposed payment shall Total future commitments ................... $388,847 $487,569 not exceed 50% of its net income av'aflable for dividends for the 12-month period ending with and including the second month usThe La Cygne unit 2 lease amounts are included in the total operating leases immediately preceding the date of the proposed payment. If the column. - , '

capitalization ratio is 20% or more.but less than 25%, then the payment of dividends on its common stock, including theproposed The La Cygne uniit 2 lease will exipire in September 2029. Upon payment, during the 12-month period ending with and including expiration, .KGE has a fixed price option to purchase La Cygne the date of the proposed payment shall not exceed 75% of its net unit 2 for a price that is estimated to be the fair market value of income available for dividends for the 12-month period ending the 'facility in 2029. KGE can also elect to renew the lease' at the with and including the second month immediately preceding expiration of the lease term n'i 2029. Howev'r,'aany renewal period, the date of the proposed payment. Except to the extent permitted wh-in added t6 the initial lease term, cani-ot exceed 80% of the above, no payment or other distribution may be made that would estirrfated useful life of La Cygiie unit' 2.

reduce the capitalization ratio to less than 25%. The capitalization ratio is determined based on the unconsolidated balance sheet for Capital Leases. '. " ,

Westar Energy. As of December 31, 2009, the capitalization ratio We identify capital leases based on ;defined criteria. For both was greater than 25%. ývehicles and computer equipment, new leases 'are'signed each month based. on the. terms of master lease agreements. The lease So long as there are any outstanding shares of Westar Energy term for vehicles is from two to 14 years depending on the type of preferred stock, Westar Energy shall not without the 'consent of a vehicle. Computer equipme.nt has a lease term of tw6 to four years.

majority of the shares of preferred stock or if more than one-third of the outstanding shares of preferred stock vote. negatively and In .April 2007, we completed the purchase of :Aquila, Inc.'s 8.%

without the consent of a percentage of any and all classes required leasehold interest; in. Jeffrey Energy Center. for $25.8. million and by law and Westar Energy's articles of incorporation, declare or pay assumed the related lease obligation. This lease expires on January 3, any dividends (other than stock dividends or dividends applied 2.019, and has a purchase option at the end of the lease-term. Based by the recipient to the purchase of additional shares) or make any on current economic and other conditions, we expect to exercise other distribution upon common stock unless, immediately after the purchase option. Based upon. these expectations, we originally such distribution or payment the sum of WestarEnergy's capital recorded a capital lease of $118.5 million which was, subsequently represented by its outstanding common stock and its earned and adjusted to $118.6 million in 2009.. ..

any capital surplus shall not be less than $10.5 million plus an amount equal to twice the'annual dividend requirement on all the then outstanding sharies of preferred stock.

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WESTAR ENERGY 1 2009 ANNUAL REPORT Assets recorded under capital leases are listed below. 19. QUARTERLY RESULTS (UNAUDITED)

December 31, 2009 2008 Our electric business is seasonal in nature and, in our opinion, (InThousands) comparisons between the quarters of a year do not give a true Vehicles ............. ... ....... $ 18,991 . $ 24,443 indication of overall trends and changes' in operations.

Computer equipment and software ................. 4,640 6,133 2009 Firstft Second() Third Fourth"NO Jeffrey Energy Center 8% interest .............. 118,623 118,538 Accumulated amortization .............. ...... . . (21,736) (22,526) (InThousands, Except Per Share Amounts)

Total capital leases. ............... ......... $120,518 $126,588 Revenues() ................. $421,767 $467,812 $ 528,534 $440,118 Net income()t .............. 44,164 38,386 81,142 11,384 Results of discontinued Capital lease payments are currently treated as operating leases operations, net of tax ...... 32,978 - - 767 for rate making purposes. Minimum annual rental payments, Net income attributable to excluding administrative costs such as property taxes, irfsuraftce common stock(') .......... 43,922 38,144 80,900 11,142 Per Share Data(at:

and maintenance, under capital leases' are listed below.

Basic:

• . Jeffirey Total Earnings available ....... $ 0.40 $ 0.35 $. 0:73 $ 0.10 Energy Center Capital Diluted:

Year Ended December 31, 8% Interest") Leases Earnings available ....... . 0.40 $ 0.35 $ 0.73 $ 0.10 (InThousands) Cash dividend declared 20 10 ........................................ $ 12,862 - $ 17,685 per'corirmon share ........ $ 0.30 $' 0.30 $ 0.30 $ 0.3b 20 11 :' ................................ ..... . 12,904 14 ,776 Market price per common share:

20 12 .............................. .......... '9,8 53 11,540 High... ............... $ 21.10 $ 19,32 $ 21.56 $ 22.30 Low ................... $ 14.86: $ 16:60 $ 17.91 ,.$ 18:91 20 13 ....................................... . 5,87 5 7,256 2014 . I .. . 5,875 7,037 (,)In the first and fourth quarters of 2009, we recognized net earnings benefits Thereafter ................................ .... 110,525 111,547 ,from discontinuedoperations of approximately $33.0 million and $0.8 million,

$157,894 169,841 respectively, due to the re-characterizationof a portion of the loss we incurred

-on the sale of Protection One, a former subsidiary,from a capital loss to an Amounts representing imputed interest .............. .(51,606) ordinary loss.,:

Present value of net minimum lease payments (tbIn the second quarter of 2009, net income and net income attributable to

• under capital leases ......... ................. 118,235 common stock increased compared to the same period last year due principally Less current portion ................ .... .. ....... 8,935 to price increases authorized by the KCC.

(cIn the fourth quarter of 2009, net income and net income attributable to Total long-term obligation under capital leases ......... $109,300 common stock decreasedcompared to the same period last year due principally

()The Jeffrey Energy Center 8% leasehold interest amounts are included in the to approximately $14.6 million net earnings benefits from state tax credits related tb investment andjobs creation within the state of Kansas recognized in total capital liases column.

2008 which did not occur in 2009.

Items are computed independentlyfor each of the periods presented and the sum

)a As a result of the adoption Iof amended accounting guidance for of the quarterly amounts may not equal the totalfor the year VIEs effective January 1, 2010, .we expect to consolidate certain trusts that hold assets, we lease. We continue to.:evaluate,.-the 2008 First"'t Secondct . Third Fourth(,'

impact that consolidating these VIEs will have'onh our consoliddted (InThousands, Except PerShare Amounts) financial results; the change may be material. See Ndte2," Sumrnn'ary Revenues('t ................ $406,827 '$451,219-' -$'574,853 $406,097' of Significant Accounting Policies," for additional information Net income4 ............... 61,136 '5,845' 88,285 22,874 regarding the amended guidance. . Net income attributable to common stocktdt ... 60,894 5,603 . 88,043, 22,632 Per Share Datatd):

18. DISCONTINUED OPERATIONS - Sale of Protection One Basic:

, Earnings available ........ $ .0.62 l' $ 0.06 .$ 0.80(l) $ 0.21 In January 2009,the joint Committee onTaxation of the U.S. Congress Diluted:

approved a settlement with the IRS Office of Appeals regarding Earnings available . $ 0.62 $ 0.06 $ 0.80 ) $ 0.21 the re-characterization of a portion of the loss we incurred on the Cash dividend declared per sale of Protection One, a former subsidiary, from a capital loss to common share ......... .. $ 0.29 $ 0.29 $ 0:29 $ 0.29 an ordinary loss: The settlement involved a determination of the Market price per common share:

High ..... :................ $ 25.92 $ 24.65 $ 24.97 $ 24.80 amount of the net capital loss arid net operating loss carryforwards Low ................... $ 21.75 $ 21.20 $ 20.82 . $ 15.97 available as of December 31, 2004, to offset income in years after t 2004. On March 31, 2009, we filed amended federal income tax "In the first quarter of 2008, we recognized a net earnings benefit of returns for years 2005, 2006 and 2007 to'claim a portion of the tax approximately $39.4 million, including interest, due to the recognition of previously unrecognized tax benefits.

benefits from the net operating loss carryforward. We expect to ""In the second quarter of 2008, net income and net income attributable to realize the remainder of the tax benefits from the net operating loss common stock decreasedcompared to the same period of 2007 due primarily to carryforward in future years. We recorded a non-cash net earnings lower energy marketing and extended planned outages at our base loadplants.

benefit of approximately $33.7 million, net of $22.8 million we paid (* In the fourth quarter of 2008; we recogniied a ntet earnings benefit of Protection One, in discontinued operations in 2009 in recognition approximately $14.6 million from state tax credits related to investment and of this settlement. jobs creation within the state of Kansas.

r*tItems are computed independentlyfor each of the periods presented and the sum of the quarterly amounts may not equal the totalfor the year r EPS amounts were adjusted to reflect the use of the two-class method. See Note 2,"Summary of Significant AccountingPolicies - EarningsperShare,"for additional information regardingthe two-class method.

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WESTAR ENERGY 1 2009 ANNUAL REPORT ITEM 9. CHANGES IN AND DISAGREEMENTS WITH PART III ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT None.

The information concerning directors required by Item 401 of Regulation S-K will be included under the caption "Election of ITEM 9A. CONTROLS AND PROCEDURES Directors" in our definitive Proxy Statement for our 2010 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports (the 2010 Proxy Statement), and that information is incorporated that we file or submit under the Securities Exchange Act of 1934 by reference in this Form .10-K. Information concerning executive is recorded, processed, summarized and reported within the time officers required by Item 401 of Regulation S-K is located under Part I, Item 1 of this Form 10-K. The information required by Item periods specified in Securities and Exchange Commission rules and 405 of Regulation S-K concerning compliance with Section 16(a) of forms. In addition, the disclosure contrdlý and procedures include, without limitation, controls and procedures designed to ensure the Exchange Act will be included under.the caption"Section 16(a) that information required to be disclosed by us in reports under the Beneficial Ownership Reporting Compliance" in our 2010 Proxy Act is accumulated and communicated to management, including Statement, and that information is incorporated by reference in this the chief executive officer and the chief financial officer, allowing Form 10-K. The information required by Item 406, 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be included under the caption timely decisions regarding required disclosure. As of the end of the period covered by this report, based on an evaluation carried out "Corporate Governance Matters"in our 2010 Proxy Statement, and under the supervision and with the participation of management, that information is incorporated by reference in this Form 10 K.

including the chief executive officer and the chief financial officer, of the effectiveness of our disclosure controls and procedures, the ITEM 11. EXECUTIVE COMPENSATION chief executive officer and the chief financial officer have concluded that our disclosure controls and procedures were effective. The information required by Item 11 will' be 'se't'forthi in our 2010 Proxy Statement under the captions" Compensation Discussion and There were no changes in our internal control over financial Analysis," "Compensation Committee Report,""Compensation of reporting during the three months ended December 31, 2009, that Executive Officers and Directors," and "Compensation Committee have materially affected, or are reasonably likely to materially affect, Interlocks and Insider Participation" and 'that information is our internal control over financial reporting:. incorporated by reference in this Form 10-K.

See "Item 8. Financial Statements and Supplementary Data" for Management's Annual Report On Internal Control Over Financial ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL Reporting and the Independent Registered Publc Accounting OWNERS AND MANAGEMENT Firm's report with respect to management's assessment of the effectiveness of internal control over financial reporting. The information required by Item 12 will be set forth in our 2010 Proxy Statement under the captions "Beneficial Ownership of Voting Securities." and "Shares Authorized For Issuance Under ITEM 9B. OTHER INFORMATION Equity Compensation Plans," and that information is incorporated by reference in this Form 10-K.

None.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required-by Item 13 will be set forth in our 2010 Proxy Statement under the caption "Corporate Governance Matters," and that information is incorporated by reference in this Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

.The information required by Item 14 will be set forth in our 2010 Proxy Statement under the captions "Independent Registered Accounting Firm .Fees" and "Audit, Committee Pre-Approval Policies and. Procedures," and that information is incorporated by reference in this Form 10-K.

71

WESTAR ENERGY 1 2009 ANNUAL REPORT PART IV "' .

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .,

FINANCIAL STATEMENTS INCLUDED HEREIN Westar Energy, Inc.

Management's Report on Internal Control Over Financial Reporting Re56ris of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2009 and 2008 Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007 Consolidated Statements of Comprehensive Income for the years ended December 31, 2009, 2008 and, 2007, Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007, Consolidated Statements of Shareholders' Equity for the years ended December 31, 2009, 2008;,and 2007 Notes to Consolidated Financial Statements .

SCHEDULES Schedule II -Valuation and Qualifying Accounts Schedules omitted as not applicable or not required under the Rules of Regulation S-X. I, III,IV, andV.' '.

EXHIBIT INDEX All exhibits marked"I"are incorporated herein by reference. All exhibits marked by an asterisk are management contracts or comnpensatory plans or arrangements required to be identified by Item 15(a)(3) of Form 10 K. All exhibits marked W'#" are filed with this Form 10-K.

Description .

1(a) - Underwriting Agreement between Westar Energy, Inc., and Citigr6up Global M~rkets Inc.and Lehmain Broth6rs Inc., :I as representatives of the several underwriters, dated January 12, 2005 (fi16 d as Exhibit 1.1 to the Form 8-K filed on January 18, 2005) 1(b) Underwriting Agreement between Westar Energy, Inc. and Barclays Capital and Citigroup Global Markets, Inc.,

as representatives of the several underwriters, daf6d June 27, 2005 (filed as Exhibit 1.1 to the Form 8-K filed on July 1, 2005) 1(c) - Sales Agency Financing Agreement, dated as of April 12, 2007, between Westar Energy, Inc. and BNY Capital Markets, Inc. (filed as Exhibit 1.1 to the.Form 8-K filed on April 12, 2007) 1(d) Sales Agency Financing Agreement, dated as of August 24, 2007, between Westar Energy, Inc. and BNY Capital Markets, Inc. (filed as Exhibit 1.1 to .the Form 8-K filed on August 27, 2007) 1(e) - Underwriting Agreement, dated November 15, 2007,, among UBS Securities LLC and J.P Morgan Securities Inc.,

as representatives of the under'riters named therein, UBS Securities LLC, in its capacity as agent for UBS AG, London Branch, and Westar Energy, Inc. (filed as Exhibit 1.1 to the Form 8-K filed on November 16, 2007) 1(f) . -v- Underwriting Agreement, dated May 29,.2008, among Citigroup Global Markets Inc., Banc of America Securities LLC and UBS Securities LLC, as representatives of the underwriters named therein, and Westar Energy, Inc.

(filed as Exhibit 1.1 to the Form 8-K filed on June 4, 2008) 1(g) - Underwriting Agreement,,dated November 18, 2008, among J.P Morgan Securities Inc. and Deutsche Bank Securities Inc., as representatives of the underwriters named therein, and Westar Energy, Inc. (filed as Exhibit 1.1 to the Form 8-K filed on November-24,.2008) .

3(a) - By-laws of Westar Energy, Inc., as amended April28, 2004 (filed as Exhibit 3(a) to the Form 10-Q for the period ended June 30, 2004 filed on August 4, 2004) 3(b) - Restated Articles of Incorporation of Westar Energy, Inc., as amended through May 25, 1988 (filed as Exhibit 4 to the Form S-8 Registration Statement, SEC File No. 33-23022 filed on July 15, 19,88) 3(c) . Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3 to the I Form 10-K405 for the period ended December 31, 1998 filed on April 14,'1999) 3(d) - Certificate of Designations for Preference Stock, 8.5% Series (filed as Exhibit 3(d) to the Form 10 K for the period ended December 31, 1993 filed on March 22, 1994)

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WESTAR ENERGY I 2009 ANNUAL REPORT 3(e) - Certificate of Correction to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(b) to the I Form 10-K for the period ended December 31, 1991 filed on March 30, 1992) 3(f) - Certificate of Designations for Preference Stock, 7.58% Series (filed as Exhibit 3(e) to the Form 10 K for the period I ended December 31, 1993 filed on March 22, 1994) 3(g) - Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(c) to the I Form 10-K for the period ended December 31, 1994 filed on March 30, 1995) 3(h) - Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3 to the I Form 10-Q for the period ended June 30, 1994 filed on August 11, 1994) 3(i) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(a) to the I Form 10-Q for the period ended June 30,1996 filed on August 14,1996) 3(j) - Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (fied as Exhibit 3 to the I Form 10-Q for the period ended March 31,1998 filed on May 12,1998) 3(k) - Form of Certificate of Designations for 7.5% Convertible Preference Stock (filed as Exhibit 99.4 to the Form 8-K I filed on November 17, 2000) 3(1) - Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(1) to the I Form 10-K for the period ended December 31, 2002 filed on April 11, 2003) 3(m) - Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(m) to the I Form 10-K for the period ended December 31, 2002 filed on April 11, 2003) 3(n) - Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(m) to the I Form S-3 Registration Statement No. 333-125828 filed on June 15, 2005) 4(a) - Mortgage and Deed of Trust dated July 1, 1939 between Westar Energy, Inc. and Harris Trust and Savings Bank, I Trustee (filed as Exhibit 4(a) to Registration Statement No. 33-21739) 4(b) - First and Second Supplemental Indentures dated July 1, 1939 and April 1, 1949, respectively (filed as Exhibit 4(b) I to Registration Statement No. 33-21739) 4(c) - Sixth Supplemental Indenture dated October 4, 1951 (filed as Exhibit 4(b) to Registration Statement No. 33-21739) I 4(d) - Fourteenth Supplemental Indenture dated May 1, 1976 (filedas Exhibit 4(b) to Registration Statement No. 33-21739) I 4(e) - Twenty-Eighth Supplemental Indenture dated July 1, 1992 (filed as Exhibit 4(o) to the Form 10-K for the period I ended December 31, 1992 filed on March 30, 1993) 4(f) - Twenty-Ninth Supplemental Indenture dated August 20, 1992 (filed as Exhibit 4(p) to the Form 10-K for the period I ended December 31, 1992 filed on March 30, 1993) 4(g) - Thirtieth Supplemental Indenture dated February 1, 1993 (filed as Exhibit 4(q) to the Form 10-K for the period I ended December 31, 1992 filed on March 30, 1993) 4(h) - Thirty-First Supplemental Indenture dated April 15, 1993 (filed as Exhibit 4(r) to the Form S-3 Registration I Statement No. 33-50069 filed on August 24, 1993) 4(i) - Thirty-Second Supplemental Indenture dated April 15, 1994 (filed as Exhibit 4(s) to the Form 10-K for the period. I erided December 31, 1994 filed on March 30, 1995) 4(j) Thirty-Fourth Supplemental Indenture dated June 28, 2000 (filed as Exhibit 4(v) to the Form 10-K for the period I ended December 31, 2000 filed on April 2, 2001) 4(k) - Thirty-Fifth Supplemental Indenture dated May 10, 2002 between Westar Energy, Inc. and BNY Midwest I Trust Company, as Trustee (filed as Exhibit 4.1 to the Form 10-Q for the period ended March 31, 2002 filed on May 15, 2002) 4(1) - Thirty- Sixth Supplemental Indenture dated as of June. 1, 2004, between Westar Energy, Inc. and BNY Midwest Trust I Company (as successor to Harris Trust and Savings Bank), to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.1 to the Form 8-K filed on January 18, 2005) 4(m) - Thirty-Seventh Supplemental Indenture, dated as of June 17, 2004, between Westar Energy, Inc. and BNY Midwest I Trust Company (as successor to Harris Trust and Savings Bank), to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.2 to the Form 8-K filed on January 18, 2005) 4(n) - Thirty-Eighth Supplemental Indenture, dated as of January 18, 2005, between Westar Energy, Inc. and BNY Midwest I Trust Company (as successor to Harris Trust and Savings Bank), to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.3 to the Form 8-K filed on January 18, 2005) 73-

WESTAR ENERGY'* 2009 ANNUAL REPORT 4(o) Thirty-Ninth Supplemental Indenture dated June 30, 2005 between Westar Energy, Inc. and BNY Midwest Trust Company (as successor to Harris Trust and Savings Bank) to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.1 to the Form 8-K filed on July 1, 2005) 4(p) - Forty-First Supplemental Indenture dated June 6, 2002 between Kansas Gas and Electric Company and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4.1 to the Form 10-Q for the period ended June 30, 2002 filed on August 14, 2002) 4(q) - Forty-Second Supplemental Indenture dated March 12, 2004 between Kansas Gas and Electric Company and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4 (p) to the Form 10-K for the period ended December 31, 2004 filed on March 16, 2005) 4(r) - Forty-Fourth Supplemental Indenture dated May 6, 2005 between Kansas Gas and Electric Company and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4 to the Form 10-Q for the period ended March 31, 2005 filed on May 10, 2005) 4(s) - Debt Securities Indenture dated August 1, 1998 (filed as Exhibit 4.1 to the Form 10-Q for the period ended June 30, 1998 filed on August 12, 1998) 4(t) - Securities Resolution No. 2 dated as of May 10, 2002 under Indenture dated as of August 1, 1998 between' I Western Resources, Inc. and Deutsche Bank Trust Company Americas (filed as Exhibit 4.2 to the Form 10-Q for the period ended March 31, 2002 filed on May 15, 2002) 4(u) - Forty-Fifth Supplemental Indenture dated March 17, 2006 between Kansas Gas and Electric Company and BNY Midwest Trust Company, as Trustee, to the Kansas Gas and Electric Company Mortgage and Deed of Trust dated April 1, 1940 (filed as Exhibit 4.1 to the Form 8-K filed on March 21, 2006) 4(v) - Forty-Sixth Supplemental Indenture dated June 1, 2006 between Kansas Gas and Electric Company and BNY Midwest Trust Company, as Trustee, to the Kansas Gas and Electric Company Mortgage and Deed of Trust dated April 1, 1940 (filed as Exhibit 4 to the Form 10-Q for the period ended June 30, 2006 filed on August 9, 2006) 4(w) Fortieth Supplemental Indenture dated May 15, 2007, between Westar Energy, Inc. and The Bank of NewYork Trust Company, N.A. (as successor to Harris Trust and Savings Bank) to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.16 to the Form 8-K filed on May 16, 2007) 4(x) - Forty-Eighth Supplemental Indenture, dated as of July 10, 2007, by and among Kansas Gas and Electric Company, The Bank of NewYork Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4(x) to the Form 10-K for the period ended December 31, 2007 filed on February 29, 2008) 4(y) - Bond Purchase Agreement, dated as of August 14, 2007, between Kansas Gas and Electric Company and Nomura International PLC (filed as Exhibit 4.1 to the Form 8-K filed on August 15, 2007) 4(z) Forty-Ninth Supplemental Indenture, dated as of October 12, 2007, by and among Kansas Gas and Electric Company, The Bank of NewYork Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4.1 to the Form 8-K filed on October 19, 2007) 4(aa) - Form of First Mortgage Bonds, 6.10% Series Due 2047 (contained in Exhibit 4(w)) I 4(ab) - Bond Purchase Agreement dated as of May 15, 2008, between Kansas Gas and Electric Company and the Purchasers I named therein (filed as Exhibit 4(1) to the Form 8-K filed on May 16, 2008) 4(ac) - Fifty-First Supplemental Indenture, dated as of May 15, 2008 by and among Kansas Gas and Electric Company, The Bank of NewYork Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4(2) to the Form 8-K filed on May 16, 2008) 4(ad) - Fifty-Second Supplemental Indenture, dated as of August 1, 2008 by and among Kansas Gas and Electric Company, The Bank of NewYork Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4(c) to the Form 10-Q for the period ended September 30, 2008 filed on November 6, 2008)ý 4(ae) Fifty-Third Supplemental Indenture, dated as of October 10, 2008 by and among Kansas Gas and Electric Company, The Bank of NewYork Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4(d) to the Form 10-Q for the period ended September 30, 2008 filed on November 6, 2008) 4(af) - Forty-First.Supplemental Indenture, dated as of November 25, 2008 by and among Westar Energy, Inc., The Bank of NewYork Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit'4.1 to the Form 8-K filed on Noveniber 24, 2008) 4(ag) Purchase Agreement, dated as of June 8, 2009, between Kansas Gas and Electric Company and and the Purchasers named therein (filed as Exhibit 4.1 to the Form 8-K/A filed on June 9, 2009)

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WESTAR ENERGY I 2009 ANNUAL REPORT 4(ah) - Fifty-Fourth Supplemental Indenture, dated as of June 11, 2009 by and among Kansas Gas and Electric Company, I The Bank of NewYork Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4(b) to the Form 10-Q for the period ended June 30, 2009 filed on August 6, 2009) 4(ai) - Fifty-Fifth Supplemental Indenture, dated as of October 1, 2009 by and among Kansas Gas and Electric Company, I The Bank of NewYork Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4(a) to the Form 10-Q for the period ended September 30, 2009 filed on October 29, 2009)

Instruments defining the rights of holders of other long-term debt not required to be filed as Exhibits will be furnished to the Commission upon request.

10(a) Long-Term Incentive and Share Award Plan (filed as Exhibit 10(a) to the Form 10-Q for the period ended I June 30, 1996 filjd 6n August 14, 1996)*

10(b) - Form of Employment Agreements with Messrs. Grennan, Koupal, Terrill, Lake and Wittig and Ms. Sharpe I (filed as Exhibit 10(b) to the Form 10-K for the period ended December 31, 2000 filed on April 2, 2001)*

10(c) - A Rail Transportation Agreement among Burlington Northern Railroad Company, the Union Pacific Railroad ,* I Company and Westar Energy, Inc. (filed as Exhibit 10 to the Form 10-Q for the period ended June 30, 1994 filed on August 11, 1994) 10(d) - Agreement between Westar Energy, Inc. and AMAX Coal West Inc. effective March 31, 1993 (filed as Exhibit 10(a) I to the Form 10-K for the period ended December 31, 1993 filed on March 22, 1994) 10(e) - Agreement between Westar Energy, Inc. and Williams Natural Gas Company dated October 1, 1993 (filed as I Exhibit 10(b) to the Form 10-K for the period ended December 31, 1993 filed on March22, 1994) 10(f) Short-term Incentive Plan (filed as Exhibit 10(j) to'the Form 10-K for the period ended December 31, 1993 1 filed on March 22, 1994)*

10(g) - Westar Energy, Inc. Non-Employee Director Deferred Compensation Plan, as amended and restated, dated I as of October 20, 2004 (filed as Exhibit 10.1 to the Form 8-K filed on October 21, 2004)*

10(h) - Executive Salary Continuation Plan of Western Resources, Inc., as revised, effective September 22, 1995 1 (filed as Exhibit 10(j) to the Form 10-K for the period ended December 31, 1995 filed on March 27, 1996)*

10(i) - Letter Agreement between Westar Energy, Inc. and David C. Wittig, dated April 27; 1995 (filed as Exhibit 10(m) I to the Form 10-K for the period ended December 31, 1995 filed on March 27, 1996)*

10(j) - Form of Split Dollar Insurance Agreement (filed as Exhibit 10.3 to the Form 10-Q for the period ended June 30, 1998 I filed on August 12, 1998)*

10(k) - Amendment to Letfer Agreement between Westar Energy, Inc. and David C. Wittig, dated April 27, 1995 I (filed as Exhibit 10 to the Form 10-Q/A for the period ended June 30, 1998 filed on August 24, 1998)*

10(1) - Letter Agreement between Westar Energy, Inc. and Douglas T. Lake, dated August 17, 1998 (filed as Exhibit 10(n) I to the Form 10-K405 for the period ended December 31, 1999 filed on March 29, 2000)*

10(m) - Form of loan agreement with officers of Westar Energy, Inc. (filed as Exhibit 10(r) to the Form 10 K for the period I ended December 31, 2001 filed on April 1, 2002)*

10(n) - Amendment to Employment Agreement dated April 1, 2002 between Westar Energy, Inc. and DavidC. Wittig I (filed as Exhibit 10.1 to the Form 10-Q for the period ended June 30, 2002 filed on August 14, 2002)*

10(o) - Amendment to Employment Agreement dated April 1, 2002 between Westar Energy and Douglas T. Lake I (filed as Exhibit 10.2 to the Form 10-Q for the period ended June 30, 2002 filed on August 14, 2002)*

10(p) - Credit Agreement dated as of June 6, 2002 among Westar Energy, Inc., the lenders from time to time party there I to, JPMorgan Chase Bank, as Administrative Agent, Citibank, NMA., as Syndication Agent, and Bank of America, N.A., as Documentation Agent (filed as Exhibit 10.3 to the Form 10 Q for the period ended June 30, 2002 filed on August 14, 2002) 10(q) Employment Agreement dated September 23, 2002 between Westar Energy, Inc. and David C. Wittig I (filed is Exhibit 10.1 to the Form 10-Q for the period ended September 30, 2002 filed on November 15, 2002)*

10(r) Employment Agreement dated September 23, 2002 between Westar Energy, Inc. and Douglas T. Lake I (filed as Exhibit 10.1 to the Form 8-K filed on November 25, 2002)*

10(s) Letter Agreement dated November 1, 2003 between Westar Energy, Inc. and James S. Haines, Jr. (filed as I Exhibit 10(a) to the Form 10-Q for the period ended September 30, 2003 filed on November 10, 2003)*

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WESTAR ENERGY I 2009 ANNUAL REPORT 10(t) - Letter Agreement dated November 1, 2003.between Westar Energy, Inc. and William B. Moore (filed as Exhibit 10(b) to the Form 10-Q for the period ended September 30, 2003 filed on November 10, 2003)*

10(u) - Letter Agreement dated November 1, 2003 between Westar"Energy, Inc. and Mark A. Ruelle (filed as Exhibit 10(c) to the Form 10-Q for the period ended September 30, 2003 filed on November 10, 2003)*

10(v) - Letter Agreement dated November 1, 2003 between Westar Energy, Inc. and Douglas R. Sterbenz (filed as Exhibit 10(d) to the Form 10-Q for the period ended September 30, 2003 filed on November 10, 2003)*

10(w) - Letter Agreement dated November 1, 2003 between Westar Energy, Inc. and Larry D. Irick (filed as Exhibit 10(e) to the Form 10-Q for the period ended September 30, 2003 filed on November 10, 2003)*

10(x) - Waiver and Amendment, dated as of November 6, 2003, to the Credit Agreement, dated as of June 6, 2002, among Westar Energy, Inc., the Lenders from time to time party thereto, JPMorgan Chase Bank, as Administrative Agent for the Lenders, Citibank, N.A., as Syndication Agent, and Bank of America, N.A., as Documentation Agent (filed as Exhibit 10(f) to the Formn10 Q for the period ended September 30, 2003 filed on November 10, 2003) 10(y) - Credit Agreement dated as of March 12, 2004 among Westar Energy, Inc., the several banks and other financial institutions or entities from time to time parties to the Agreement, JPMorgan Chase Bank; as administrative agent, The Bank of NewYork, as syndication agent, and Citibank, N.A., Union Bank of California, N.A., and Wachovia Bank, National Association, as documentation agents (filed as Exhibit 10(a) to the Form 10-Q for the period ended March 31, 2004 filed on May 10, 2004) 10(z) Supplements and modifications to Credit Agreement dated as of March 12, 2004 among Westar Energy, Inc., as Borrower, the Several Lenders PartyThereto, JPMorgan Chase Bank, as Administrative Agent, The Bank of NewYork, as Syndication Agent, and Citibank, N.A., Union Bank of California, N.A., and Wachovia Bank, national Association, as Documentation Agents (filed as Exhibit 10(a) to the Form 10-Q for the period ended June 30, 2004 filed on August 4, 2004) 10(aa) - Purchase Agreement dated as of December 23, 2003 between P01 Acquisition, L.L.C., Westar Industries, Inc. and I Westar Energy, Inc. (filed as Exhibit 99.2 to the Form 8-K filed on December 24, 2003) 10(ab) - Settlement Agreement dated November 12, 2004 by and among Westar Energy, Inc., Protection One, Inc., POI Acquisition, L.L.C., and POI Acquisition I, Inc. (filed as Exhibit 10.1 to the Form 8-K filed on November 15, 2004) 10(ac) - Restricted Share Unit Award Agreement between Westar Energy, Inc. and James S. Haines, Jr. (filed as Exhibit 10.1 to the Form 8-K filed on December 7, 2004)*

10(ad) - Deferral Election Form of James S. Haines, Jr. (filed as Exhibit 10.2 to the Form 8-K filed on December 7, 2004)* I 10(ae) - Resolutions of the Westar Energy, Inc. Board of Directors regarding Non-Employee Director Compensation, I approved on September 2, 2004 (filed as Exhibit 10.1 to the Form 8-K filed on December 17, 2004)*

10(af) - Restricted Share Unit Award Agreement between We'star Energy, Inc. and William B. Moore (filed as Exhibit 10.1 to the Form 8-K filed on December 29, 2004)*

10(ag) - Deferral Election Form of William B. Moore (filed as Exhibit 10.2 to the Form 8 K filed on December 29, 2004)* I 10(ah) - Amended and Restated Credit Agreement dated as of May 6, 2005 among Westar Energy, Inc., the several banks I and other financial institutions or entities from time to time parties to the Agreement, JPMorgan Chase Bank, N.A.,

as administrative agent, The Bank of NewYork, as syndication agent, and Citibank, N.A., Union Bank of California, N.A., and WachoviaBank, National Association, as documentation agents. (filed as Exhibit 10 to the Form 10-Q for the period ended March 31, 2005 filed on May 10, 2005) 10(ai) Amended and Restated Westar Energy Restricted Share Units Deferral Election Form for James S. Haines, Jr.

(filed as Exhibit 10.1 to the Form 8-K filed on December 22, 2005)*

10(aj) - Form of Change in Control Agreement (filed as Exhibit 10.1 to the Form 8-K filed on January 26,2006)* I 10(ak) - Form of Amendment to the Employment Letter Agreements for Mr. Ruelleand Mr. Sterbenz (filed as Exhibit 10.2 I to the Form 8-K filed on January 26, 2006)*

10(al) - Form of Amendment to the Employment Letter Agreements for Mr. Irick and One Other Officer (filed as Exhibit 10.3 to the Form 8-K filed on January 26, 2006)*

10(am) - Second Amended and Restated Credit Agreement, dated as of March 17, 2006, among Westar Energy, Inc.,

the several banks and other financial institutions or entities from time to time parties to the Agreement (filed as Exhibit 10.1 to the Form 8-K filed on March 21, 2006)

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WESTAR ENERGY I 2009 ANNUAL REPORT 10(an) Amendment to the Employment Letter Agreement for Mr. James S. Haines, Jr. (filed as Exhibit 99.3 to the Form 8-K I filed on August 22, 2006)* .. I .

10(ao) - Confirmation of Forward Sale Transaction, dated November 15, 2007, between UBS AG, London Branch and Westar I Energy, Inc. (filed as Exhibit 10.1 to the Form 8-K filed on November 16, 2007) 10(ap) Third Amended and Restated Credit Agreement dated as of February 22, 2008, among Westar Energy, Inc., and I several banks and other financial institutions or entities from time to time parties to the Agreement (filed as.

Exhibit 10.1 to the Form 8-K filed on February 26, 2008) 10(aq) - Westar Energy, Inc. Form of Restricted Share Units Award #

10(ar) - Westar Energy, Inc. Form of Performance Based Restricted Share Units Award #

10(as) - Westar Energy, Inc. Form of First Transition Performance Based Restricted Share Units Award #

10(at) - Westar Energy, Inc. Form of Second Transition Performance Based Restricted Share Units Award #

10(au) - Form of Amended and Restated Change in Control Agreement with Officers of Westar Energy, Inc. #

12(a) - Computations of Ratio of Consolidated Earnings to Fixed Charges #

12(b) - Computation of Ratio of Earnings to Fixed Charges for the Three Months Ended March 31, 2007 (filed as I Exhibit 12.1 to the Form 8-K filed on May 10,2007) 21 - Subsidiaries of the Registrant #

23 - Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP #

31(a) - Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 #

31(b) - Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 #

32 - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished and not to be considered #

filed as part of the Form 10-K) 99(a) - Kansas Corporation Commission Order dated November 8, 2002 (filed as Exhibit 99.2 to the Form 10-Q for the I period ended September 30, 2002 filed on November 15, 2002) 99(b) - Kansas Corporation Commission Order dated December 23, 2002 (filed as Exhibit 99.1 to the Form 8-K filed I on December 27,2002) 99(c) - Debt Reduction and Restructuring Plan filed with the.Kansas Corporation Commission on February 6, 2003 (filed as Exhibit 99.1 to the Form 8-K filed on February 6, 2003) 99(d) - Kansas Corporation Commission Order dated February 10, 2003 (filed as Exhibit 99.1 to the Form 8 K filed on February 11, 2003) 99(e) - Kansas Corporation Commission Order dated March 11, 2003 (filed as Exhibit 99(f) to the Form 10 K for the I period ended December 31, 2002 filed on April 11, 2003) 99(f) - Demand for Arbitration (filed as Exhibit 99.1 to the Form 8-K filed on June 13, 2003) I 99(g) - Stipulation and Agreement filed with the Kansas Corporation Commission on July 21, 2003 (filed as Exhibit 99.1 I to the Form 8-K filed on July 22, 2003) 99(h) - Summary of Rate Application dated May 2, 2005 (filed as Exhibit 99.1 to the Form 8 KA filed on May 10, 2005) I 99(i) - Federal Energy Regulatory Commission Order On Proposed Mitigation Measures, Tariff Revisions, and Compliance I Filings issued September 6, 2006 (filed as Exhibit 99.1 to the Form 8-K filed on September 12, 2006) 99(j) - Stipulation and Agreement filed with the Kansas Corporation Commission on October 27, 2008 (filed as I Exhibit 99.1 to the Form 8-K filed on October 27, 2008) 99(k) - Civil complaint filed by the United States Department of Justice on February 4, 2009 (filed as Exhibit 99.1 to the I Form 8-K filed on February 5, 2009) 99(1) - Consent Decree with the United States Departmentof Justice and Appendix A thereto filed with the United States I District Court for the District of Kansas on or about January 25, 2010 (filed as Exhibits 99.2 and 99.3, respectively, to the Form 8-K filed on January 25, 2010) 77-

WESTAR ENERGY I 2009 ANNUAL REPORT WESTAR ENERGY, INC.

SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions(a of Period (InThousands)

Year ended December 31, 2007 Allowances deducted from assets for doubtful accounts .................................. .... $6,257 $3,273 $(3,809) $5,721 Year ended December 31, 2008 Allowances deducted from assets for doubtful accounts ..................................... . $5,721 $3,580 $(4,491 ) $4,810 Year ended December 31, 2009 Allowances deducted from assets for doubtful accounts . $4,810 $5,797 $(5,376) $5,231 5

'° Deductions are the result of write-offs of accounts receivable. .

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WESTAR ENERGY-I 2009 ANNUAL REPORT SIGNATURE Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WESTAR ENERGY, INC.

Date: February 25, 2010 By: /s/ Mark A. Ruelle Mark A. Ruelle, Executive Vice President and Chief Financial Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ WILLIAM B. MOORE Director, President and Chief Executive Officer February 25, 2010 (William B. Moore) (Principal Executive Officer)

Is/ MARK A. RUELLE Executive Vice President and Chief Financial Officer February 25, 2010 (Mark A. Ruelle) (Principal Financial and Accounting Officer)

/s/ CHARLES Q. CHANDLER IV Chairman of the Board February 25, 2010 (Charles Q. Chandler MV)

Is/ MOLLIE H. CARTER Director February 25, 2010 (Mollie H. Carter)

Is/ R. A. EDWARDS III Director February 25, 2010 (R. A. Edwards III)

Is/ JERRY B. FARLEY Director February 25, 2010 (Jerry B. Farley)

Is/ B. ANTHONY ISAAC Director February 25, 2010 (B.Anthony Isaac)

Is! ARTHUR B. KRAUSE Director February 25, 2010 (Arthur B. Krause)

Is! SANDRA A. J.LAWRENCE Director February 25, 2010 (Sandra A. J. Lawrence)

Is! MICHAEL F. MORRISSEY Director February 25, 2010 (Michael F. Morrissey)

/s/ JOHN C. NETTELS, JR. Director February 25, 2010 (John C. Nettels, Jr.)

79-

WESTAR ENERGY I .2009 ANNUAL REPORT SHAREHOLDER INFORMATION AND ASSISTANCE:

Westar Energy's Shareholder Services CONTACTING TRUSTEE FOR FIRST department offers personalized service SHAREHOLDER SERVICES MORTGAGE BONDS to the company's individual shareholders. PRINCIPAL TRUSTEE, PAYING TELEPHONE We are the transfer agent for Westar AGENT AND REGISTRAR Energy common and preferred stock. Toll-free: (800) 527-2495 Shareholder Services provides information In the Topeka area: (785) 575-6394 The Bank of New York and assistance to shareholders regarding: 2 North LaSalle Street, Suite 1020 Fax: (785) 575-1796 Chicago, IL 60602-3802

" Dividend payments ADDRESS (800) 548-5075

- Historically paid on the first business Westar Energy, Inc.

day of January, April, CORPORATE INFORMATION Shareholder Services July and October P.O. Box 750320 CORPORATE ADDRESS

" Direct deposit of dividends Topeka, KS 66675-0320 Westar Energy, Inc.

" Transfer of shares E-MAIL ADDRESS 818 South Kansas Avenue

" Lost stock certificate assistance shareholders@WestarEnergy.com Topeka, KS 66612-1203 (785) 575-6300

" Direct Stock Purchase Plan assistance www.WestarEnergy.com Please include a daytime telephone.

- Dividend reinvestment number in all correspondence.

- Purchase additional shares by COMMON STOCK LISTING making optional cash payments Ticker Symbol (NYSE): WR CO-TRANSFER AGENT by check or monthly electronic Daily Stock Table Listing:

withdrawal from your bank account Continental Stock Transfer WestarEngy

- Deposit your stock certificates & Trust Company into the plan for safekeeping 17 Battery Place, 8th Floor New York, NY 10004 CHIEF EXECUTIVE OFFICER

- Sell shares AND CHIEF FINANCIAL OFFICER CERTIFICATIONS Please contact us in writing to request CONTACTING INVESTOR RELATIONS elimination of duplicate mailings because In 2009 our chief executive officer of stock registered in more than one TELEPHONE (785) 575-8227 submitted a certificate to the New York way. Mailing of annual reports can Stock Exchange (NYSE) affirming that be eliminated by marking your proxy ADDRESS he is not aware of any violation by the card to consent to accessing reports Westar Energy, Inc. company of the NYSE's corporate electronically on the Internet. Investor Relations governance listing standards. Our chief P.O. Box 889 executive officer's and chief financial Please visit our Web site Topeka, KS 66601-0889 officer's certifications pursuant to Section at www.WestarEnergy.com.

302 of the Sarbanes-Oxley Act of 2002 for Registered shareholders can easily E-MAIL ADDRESS the year ended December 31, 2009, were access their shareholder account ir@WestarEnergy.com included as exhibits to Westar Energy, Inc.'s information online by clicking on the Annual Report on Form 10-K for the Go to Shareholder Sign-in button. Copies of.our Annual Report on year ended December 31, 2009, that was Form 10-K filed with the Securities and Exchange Commission and other filed with the Securities and Exchange published reports can be obtained Commission..

without charge by contacting Investor Relations at the above address, by accessing the company's home page on the Internet at www.WestarEnergy.

corn or by accessing the Securities and Exchange Commission's Internet Web site at www.sec.gov.

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WESTAR ENERGY I 2009 ANNUAL REPORT Westar Energy Board of Directors, from left, is composed of Jerry B. Farley,B. Anthony Isaac, Sandra A.J Lawrence, Arthur B. Krause, William B. Moore, Charles Q. Chandler IV John C Nettels Jr, Michael F Morrissey Mollie Hale Carterand R.A. Edwards Ill.

DIRECTORS:

CHARLES Q. CHANDLER IV (56) R.A. EDWARDS III (64) ARTHUR B. KRAUSE (68) MICHAEL F. MORRISSEY (67)

Chairman of the Board Directorsince 2001 Directorsince 2003 Directorsince 2003 Directorsince 1999 Director, President and Executive Vice President and Managing Partner (Retired)

Chairmansince 2002 Chief Executive Officer Chief Financial Officer (Retired) Ernst & Young LLP Chairman of the Board, President First National Bank Sprint Corporation Naples, Florida and Chief Executive Officer of Hutchinson Naples, Florida Committees: Audit, Compensation INTRUST Bank, NA Hutchinson, Kansas Committees: Audit, Finance Wichita, Kansas JOHN C. NETTELS, JR. (53)

Committees:Audit, Nominating SANDRA A.J. LAWRENCE (52) Directorsince 2000 MOLLIE HALE CARTER (47) and Corporate Governance Directorsince 2004 Partner Directorsince 2003 JERRY B. FARLEY (63) Executive Vice President and Stinson Morrison Hecker LLP Chairman of the Board, President Directorsince 2004 Chief Financial Officer Overland Park, Kansas and Chief Executive Officer President Children's Mercy Hospital Committee: Finance Sunflower Banks, Inc. Washburn University Kansas City, Missouri Salina, Kansas Topeka, Kansas Committees: Compensation, Nominating Committees: Compensation, Finance Committees:Audit, Nominating and Corporate Governance and Corporate Governance WILLIAM B. MOORE (57)

B. ANTHONY ISAAC (56) Directorsince 2007 Directorsince 2003 President and Chief Executive Officer President Westar Energy, Inc.

LodgeWorks, LP Topeka, Kansas Wichita, Kansas Committees: Compensation, Finance OFFICERS:

WILLIAM B. MOORE (57) BRUCE AKIN (45) KELLY B. HARRISON (51) PEGGY S. LOYD (52) 29 years of service 22 years of service 28 years of service 31 years of service Director, President and Chief Vice President, Operations Vice President, Transmission Vice President, Customer Care Executive Officer Strategy and Support Operations and Environmental ANTHONY D. SOMMA (46)

Services DOUGLAS R. STERBENZ (46) JERL L. BANNING (48) 15 years of service 12 years of service 1 year of service LARRY D. IRICK (53) Vice President, Treasurer Executive Vice President and Vice President, Human Resources 10 years of service LEE WAGES (61)

Chief Operating Officer Vice President, General Counsel JEFF BEASLEY (51) 32 years of service and Corporate Secretary MARK A. RUELLE (48) 32 years of service Vice President, Controller 17 years of service Vice President, Corporate KENNETH C. JOHNSON (56)

CAROLINE A. WILLIAMS (53)

Executive Vice President and Compliance and Internal Audit 8 years of service 34 years of service Chief Financial Officer Vice President, Generation GREG A. GREENWOOD (44) Vice President, Distribution JAMES J. LUDWIG (51) 16 years of service MICHAEL LENNEN (64) Power Delivery 19 years of service Vice President, Major 3 years of service Executive Vice President, Construction Projects Vice President, Regulatory Affairs Public Affairs and Consumer Services Ages and years of seroice are as of Deceimber 31, 2009. 81-

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