ML13151A275

Westar Energy, 2012 Annual Report

ML13151A275
Person / Time
Site:	Wolf Creek
Issue date:	12/31/2012
From:	Westar Energy
To:	Office of Nuclear Reactor Regulation
References
RA 13-0062
Download: ML13151A275 (84)

Text

Westar Energay.

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LT WESTAR ENERGY 2012 ANNUAL REPORT

On the cover: Jeffrey Energy Center's prairie,lakes and wetlands, and the plantsand wildlife that call them home.

Environmentalstewardship is reflected in the scenic landscapesurroundingJeffrey Energy Center as well as in the naturalmethods incorporatedinto water treatment at the plant.

Since the late 1980s, Westar Energy has partnered with the Kansas Department of Wildlife and Parks to enhance land surroundingthe plant for the benefit of public recreationand fish and wildlife populations.People are encouragedto visit the site to hike, fish and hunt. Environmentaleducation is important,so each year Westar Energy's Green Team offers programs designed to help youths better understandand appreciatenature.

Letter to Shareholders 1 Built to treatthe wastewaterresulting from 2012 Financial Measures 6 the scrubbing process, artificialwetlands have Form 10-K 7 become an integralpartof watertreatment Shareholder Information A team of Westar employees creatively devised and Assistance 80 a plan to bypass costly chemical watertreatment Corporate Information 80 by creating wetlands using plants, soil, fungi Directors and Officers 81 and bacteriato naturallytreat the water..

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• WESTAR ENERGY 1 2012 ANNUAL REPORT DEAR SHAREHOLDERS More than a century ago our predecessors had a Investing in our state's future vision of the remarkable value of electricity. They Over the past seven years we've invested nearly trusted that if they met the electricity needs of Kansas, $5 billion in equipment to keep our electrical investors would be rewarded and their communities infrastructure safe and stronger. Our investments would become brighter, more productive places to have allowed us to diversify our power sources; take live and work. better care of the environment; improve the reliability, Although Edison, despite his genius, could not security and efficiency of the grid; and reduce the have imagined all the ways customers today put our possibility that our customers find themselves in electricity to work, the vision remains true. At Westar the dark.

we start and end with what's in our customers' and Our commitment to building a strong transmission our communities' best interests, and that's how we network is providing Kansas with a reliable electricity produce value for our investors. super highway to meet the needs of our customers Electricity powers our safe and convenient way and our neighbors, today and for decades to come.

of life. A typical Westar Energy electricity customer Cumulative CapitalExpenditures can flip on the lights, make a pot of coffee, catch the 2006-2012 TV news, cook a meal (and refrigerate the leftovers),

check email and much more for less cost than a gallon Environmental - 28%

of gas. For 2012, the cost of the daily electricity that Generation - 27%

powers the learning in one of our largest high schools M Transmission - 20%

is less than fifty cents per student. These kitchen-table Distribution - 16%

economics matter to our customers, and we believe m Wind - 6%

they might be of interest to you, our owners. Other - 3%

Source: Westar's 10-Ks II

WESTAR ENERGY I 2012 ANNUAL REPORT A new 345,000 volt transmission line spanning from " Westar achieved its safest year ever, with the more near Wichita, Kansas, to the Oklahoma border is now than 600 people operating and supporting our power allowing electricity to flow interstate more reliably and plants avoiding even a single injury.The safety efficiently. We completed that project last April, ahead performance of our entire workforce, more than of schedule and $25 million under budget. We formed 2,300 people, put us among top industry leaders; a joint venture that is constructing another high

• We received the award for Best Maintenance voltage transmission line, and we're happy to report Reliability Program from Uptime Magazine for it, too, is tracking significantly favorable to budget how our employees maintain our power plants -

and remains on schedule. Upon completion, this new predicting and preventing more costly problems line will strengthen our regional network, improving down the road. With the success of that program, reliability and efficiency, and support more wind we are now taking those same techniques into energy in western Kansas that our customers can our transmission and substation operations; export at economic advantage.

" Ironwood and Post Rock wind farms began In 2012, we commissioned new emission-control commercial operation and are providing an equipment at Lawrence Energy Center to continue additional 370 megawatts of renewable energy that plant's decades-long legacy of environmental under attractive, long-term, fixed-price power leadership. Air quality projects at our Jeffrey and contracts. With these additions, renewable La Cygne energy centers, too, remain on schedule resources now represent about 670 megawatts, and on budget. At Jeffrey, we're installing equipment - more than meeting the current requirements for much like the catalytic converter on your car, but renewable energy in Kansas; thousands of times larger - to further reduce nitrogen

• We reduced the duration and frequency of power oxide emissions and as part of an agreement with outages, measured in accordance with industry the federal and state environmental regulators. Our standard, to their lowest numbers in eight years, engineers and environmental experts have developed and our customers registered a higher degree of an even less expensive way to keep some of our other satisfaction with our service; and plants in compliance with the latest, very stringent,

" We reduced the air emissions and improved environmental regulations.

wastewater quality from our power plants.

Operational achievements Safeguarding our environment Equally important to those investment decisions The emissions of sulfur dioxide and nitrogen oxide is how we go about operating all that equipment. from our power plants are down 85 percent and Let me share with you a few operational highlights. 66 percent, respectively, from just a few years ago.

Since 2005, our carbon dioxide emissions also are 21

WESTAR ENERGY I 2012 ANNUAL REPORT down almost 20 percent. Rather than use chemicals Air Quality improvement 2005 -2012 to treat the water required in some of these processes, we've turned that job over to an artificial wetland at Sulfur Dioxide one of our generating stations, with the plants we 185%

selected doing the work instead of chemicals. 120.000 We hold being good stewards of our environment as a 7 100.000 high priority, but we know that in a hyper-competitive global economy, equally important is that we keep III 80.000 electricity reliable and affordable. So while some companies may yield to the fad and fashion of the 0 60,000 I.-

day by shutting down one type of power plant and doubling down on just one other, at Westar we try to 40,000 resist the temptation to limit choice and adaptability.

We know each method of producing electricity has 20,000 advantages and disadvantages. History tells us that each comes in and out of favor, and sometimes back '05 '06 '07 '08 '09 '10 '11 '12 into favor again. When we say that we favor an "all of the above" energy policy, we mean it. Accordingly, Nitrogen Oxide even as we have made the largest commitment to 166%

renewable energy in our state, we continue to rely 70,000 not just increasingly on one method of producing 60,000 electricity, but on all types - coal, nuclear, natural gas and renewables, while improving the quality 50.000 and safety of each. Though we have not added any 40,000 new coal plants to our system in three decades, 2 0

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we've maintained the ones we have and they remain 30,000 important to our energy portfolio. To illustrate this point, even though natural gas prices have fallen 20,000 significantly, our delivered cost of coal is still about 10,000 half the price of natural gas, which helps explain why it makes sense to upgrade environmental performance

'05 '06 '07 '08 '09 '10 '11 '12 at some of our coal plants rather than throw in the towel and shut them down as many others are doing.

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WESTAR ENERGY I 2012 ANNUAL REPORT Westar's FavorableRetail Rates to improve customer service, cut costs and safeguard Cents per kWh the environment. For example, with this technology US Avg. im rii we are now able to connect power for new customers without having to impose another appointment on Other Kansas Investor-Owned I I I them. Plus, we no longer have to roll a truck to initiate Utilities Avg.

Westar service. Imagine how much more efficient that is around the KU campus when each spring and fall 0 2 4 6 8 10 thousands of students check in and out of their Source: Edison Electric Institute; Rates as of 6/30/12 apartments.

We are grateful that we have been able to make Through our WattSaver program, our customers are remarkable improvements in our power plant helping us manage high demnand for energy during emissions while keeping prices affordable for our the hottest summer months, while saving money on customers. Our rates remain significantly low their heating and cooling bills. Customers receive a compared to state-wide and national averages.

programmable thermostat from us, permitting us Safe, reliable electricity is a foundation of our to manage their demand on the few summer days economy, which is why we're committed to doing when electricity output from our plants is highest.

what it takes to meet Kansas' continually changing We have installed more than 50,000 WattSavers and energy needs. And that requires significant invest- 95 percent of those customers tell us they are happy ment. We've worked with regulators and lawmakers with the program.

to develop constructive regulations to ensure that key ElectroGo is helping us and our customers get ready cost drivers, such as environmental and transmission for electric ,vehicles. With two years of experience investment, are accurately reflected in the prices we driving and owning electric vehicles, and installing are allowed to charge for electricity. Without this charging stations, Westar is becoming a trusted source connection, we would be at a disadvantage raising for electric vehicle information. We've extended our the capital we need to make these investments.

fleet to include a broad range of 20 plug-in vehicles, Such constructive policy recognizes the connection including extended-range electrics like the Chevy Volt between keeping our company financially healthy and 100 percent electrics like the Nissan Leaf, Ford and the economic well-being of our state.

Transit and Smith Electric Service truck. We even Customer-focused programs have some hybrid bucket trucks. We have installed 54 electric vehicle charging stations across our service As regulatory mandates drive prices higher, we territory - with most of them open to the public.

continue to help our customers manage their energy cost by putting electricity to work more efficiently. We're helping customers learn which electric vehicles We've empowered our Lawrence area customers work best for different applications, especially those with advanced meters. This same system allows us who run fleets with local routes or use off-road 41

WESTAR ENERGY I 2012 ANNUAL REPORT vehicles like forklifts, airport utility carts, warehouse Dividend vehicles or other specialty vehicles. We're also able Long-standing dividend payout target of 60%-75% of earnings to help companies make decisions about the most 2005 suitable charging stations. Kansas isn't a hub for 2006 I I electric vehicles yet, but more are being driven down our streets and parked in our garages. We're ready 2007 ----

2008 to help our customers make that transition when those vehicles meet their needs. 2009 2010 ----

Navigating uncertainty 2011 ---- - I Rather than assuming soft electricity sales are a 2012 -----

temporary phenomenon, our employees are acting 2013 --- i- 3 as though they are a fact of life. Accordingly, mid-year, $0.75 $0.85 $0,95 S1.05 $1.15 $1.25 $1.35 we took another sharp look at our costs, realizing *Indicatedannual rate that if we are to keep Westar successful even amongst soft energy sales, we need to be more productive. I'm and ended it only slightly higher at $28.62. But even pleased to report that our employees went to work with such modest stock price appreciation, when and met our efficiency targets. As a result, you'll see added to the dividend we paid, the result was a still that we reduced our staffing costs with the number respectable 4.1 percent total shareholder return.

of employees at year end down almost 5 percent, even We know that our shareholders continue to rely on as our customer numbers were up. Moreover, we were their Westar dividends for a significant portion of able to accomplish much of this reduction by simply their expected return on investment. Strong earnings not backfilling positions open as a result of employees per share last year gave your board of directors reaching retirement. confidence to again increase the dividend for the ninth consecutive year.

Investment performance The past few years have taught us that few guarantees Thank you for your investment. Without our exist in life, particularly when it comes to investments. investors' continued trust and confidence, we can Our goal at Westar is to create an island of predicta- accoriplish nothing.

bility amongst all this uncertainty. After terrific stock market performance in 2011, last year investors started shifting away from utilities and back into other investments. Accordingly, most utilities, including Westar, saw only modest appreciation in their share Mark A. Ruelle Presidentand Chief Executive Officer prices for 2012. We started the year at $28.35 per share Is

WESTAR ENERGY I 2012 ANNUAL REPORT 2012 FINANCIAL MEASURES 2012 2011 FINANCIAL DATA (Dollarsin Millions)

INCOME HIGHLIGHTS Revenues ........................................................ $2,26 1 $2,17 1 Net inco m e ...................................................... 282 2 36 Net income attributable to common stock ............................... 274 229 BALANCE SHEET HIGHLIGHTS Total assets ...................................................... $9,265 $8,683 Com mon stock equity .............................................. 2,896 2,769 Capital structure:

Com m on equity .............................................. 49% 50%

Noncontrolling interests ........................................ <1% <1%

Long-term debt, including VIEs ................................... 51% 50%

OPERATING DATA Sales (Thousands of MWh)

Retail ........................................................ 19,938 20 ,236 W ho lesale ................................................... 7,7 19 8,2 15 Custom ers ....................................................... 690,000 688,000 COMMON STOCK DATA PER SHARE HIGHLIGHTS Basic earnings per com m on share ..................................... $2.15 $1.95 Dividends declared per common share .................................. $1.32 $1.28 Book value per share ............................................... $22.89 $22.03 STOCK PRICE PERFORMANCE Common stock price range:

High . .. . . . .. . . .. . .. . . .. .. . . . .. . .. . .. . .. . . .. .. . . .. . .. . . .. . . .. $3 3.04 $2 9 .0 5 Low ........................................................ $26.80 $22 .63 Stock price at year end .............................................. $28.62 $28.78 Average equivalent common shares outstanding (in thousands) ............... 126,712 116,891 Dividend yield (based on year end annualized dividend) ..................... 4.6% 4.4%

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WESTAR ENERGY I 2012 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, 2012 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 (Title of each class) (Name of each exchange on which registered)

Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant is a well-known seasoned issuer (as defined in Ride 405 of the Act).. Yes N No D 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 N] No F 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 EK No F 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. []

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 FX Accelerated filer E] Non-accelerated filer D Smaller reporting company El Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes E No N The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $3,780,404,248 at June 30, 2012.

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 126,779,907 shares (Class) (Outstanding at February 19, 2013)

DOCUMENTS INCORPORATED BY

REFERENCE:

Description of the document Part of the Form 10-K Portions of the Westar Energy, Inc. definitive proxy statement Part IiI (Item 10 through Item 14) to be used in connection with the registrant's 2013 Annual (Portions of Item 10 are not incorporated Meeting of Shareholders by reference and are provided herein) 17

WESTAR ENERGY I 2012 ANNUAL REPORT TABLE OF CONTENTS Page PART I Item 1 . Bu sin ess .... ........... ... ... ........... ................ .. ............... ........... ..... .......... .. .... 11 Item IA . Risk Factors .............................................................................................. 18 Item lB. Unresolved Staff Com m ents ................................................................................ 21 Item 2 . Pro p erties ................................................................................................ 21 Item 3 . Legal Proceed ings ......................................................................................... 21 Item 4. M ine Safety D isclosures .................................................................................... 21 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ......................................... 22 Item 6. Selected Financial D ata .................................................................................... 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................... 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................................................... 38 Item 8. Financial Statem ents and Supplem entary Data ................................................................ 40 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ........................... 75 Item 9A . C ontrols and Procedures ................................................................................... 75 Item 9B . O ther Inform ation ........................................................................................ 75 PART III Item 10. Directors and Executive Officers of the Registrant .............................................................. 75 Item 11. Executive C om pensation ................................................................................... 75 Item 12. Security Ownership of Certain Beneficial Owners and Management .............................................. 75 Item 13. Certain Relationships and Related Transactions ................................................................ 75 Item 14. Principal Accountant Fees and Services ....................................................................... 75 PART IV Item 15. Exhibits and Financial Statem ent Schedules ................................................................... 76 S igna tu res . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 81

WESTAR ENERGY I 2012 ANNUAL REPORT GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report.

Abbreviation Abbreviation or Acronym Definition or Acronym Definition AFUDC Allowance for funds used during MATS Mercury and Air Toxics Standards construction MMBtu Miliions of Btu ARO Asset retirement obligation Moody's Moody's Investors Service BACT Best Available Control Technology MW Megawatt(s)

BNSF BNSF Railway Company MWh Megawatt hour(s)

Btu British thermal units NAAQS National Ambient Air Quality Standards CCB Coal combustion byproduct NDT Nuclear Decommissioning Trust CO Carbon monoxide NEIL Nuclear Electric Insurance Limited CO 2 Carbon dioxide NOx Nitrogen oxides COLI Corporate-owned life insurance NRC Nuclear Regulatory Commission CSAPR Cross-State Air Poflution Rule NSPS New Source Performance Standard Dodd-Frank Act Dodd-Frank Wall Street Reform OTC Over-the-counter and Consumer Protection Act PCB Polychlorinated biphenyl DOE Department of Energy PM Particulate matter DSPP Direct Stock Purchase Plan PRB Powder River Basin ECRR Environmental Cost Recovery Rider RECA Retail energy cost adjustment EPA Environmental Protection Agency RSU Restricted share unit EPS Earnings per share RTO Regional Transmission Organization FERC Federal Energy Regulatory Commission S&P Standard & Poor's Ratings Services Fitch Fitch Ratings S&P 500 Standard & Poor's 500 Index GAAP Generally Accepted Accounting Principles S&P Electric Utilities Standard & Poor's Electric Utility Index GHG Greenhouse gas SCR Selective catalytic reduction IRS Internal Revenue Service SEC Securities and Exchange Commission JEC Jeffrey Energy Center SO, Sulfur dioxide KCC Kansas Corporation Commission SPP Southwest Power Pool KCPL Kansas City Power & Light Company SSCGP Southern Star Central Gas Pipeline KDHE Kansas Department of Health and Staff Staff of the Securities Exchange Environment Commission KGE Kansas Gas and Electric Company VaR Value-at-Risk La Cygne La Cygne Generating Station VIE Variable interest entity LTISA Plan Long-Term Incentive and Share Wolf Creek Wolf Creek Generating Station Award Plan 19

WESTAR ENERGY I 2012 ANNUAL REPORT FORWARD-LOOKING STATEMENTS " risks associated with execution of our planned capital expenditure program, including timing and receipt of regulatory approvals Certain matters discussed in this Annual Report on Form 10-K are necessary for planned construction and expansion projects as "forward-looking statements." The Private Securities Litigation well as the ability to complete planned construction projects Reform Act of 1995 has established that these statements quality within the terms and time frames anticipated, for safe harbors from liability. Forward-looking statements may

" cost, availability and timely provision of equipment, supplies, include words like we "believe," "anticipate," "target," "expect,"

"estimnate,""intend"and words of similar meaning. Forward-looking labor and fuel we need to operate our business,

" availability of generating capacity and the performance of our statements describe our future plans, objectives, expectations generating plants, or goals. Such statements address future events and conditions

" changes in regtilation of nuclear generating facilities and nuclear concerning matters such as, but not limited to:

materials and fuel, including possible shutdown or required

• amount, type and timing of capital expenditures, modification of nuclear generating facilities,

• earnings, " additional regulation due to Nuclear Regulatory Commission

• cash flow, (NRC) oversight to ensure the safe operation of Wolf Creek,

• liquidity and capital resources, either related to Wolf Creek's performance, or potentially

• litigation, relating to events or performance at a nuclear plant anywhere

• accounting matters, in the world,

• possible corporate restructurings, acquisitions and dispositions, " uncertainty regarding the establishment of interim or permanent

• compliance with debt and other restrictive covenants, sites for spent nuclear fuel storage and disposal,

• interest rates and dividends, " homeland and information security considerations,

• environmental matters, " changes in accounting requirements and other accounting

• regulatory matters, matters,

• nuclear operations, and " changes in the energy markets in which we participate resulting

• the overall economy of our service area and its inmpact on our from the development and implementation of real time and next customers'demand for electricity and their ability to pay for service. day trading markets, and the effect of the retroactive repricing of transactions in such markets following execution because What happens in each case could vary materially from what we of changes or adjustments in market pricing mechanisms by expect because of such things as:

regional transmission organizations (RTOs) and independent

" the risk of operating in a heavily regulated industry subject system operators, to frequent and uncertain political, legislative, judicial and " regulatory limits, higher costs and/or reduced demand associated regulatory developments at any level of government that can with coal-based energy because of concerns about environmental affect our revenues and costs, impact or the desire to advance alternate energy sources,

" the difficulty of predicting the amount and timing of changes in " conservation and energy efficiency measures wlhich may reduce demand for electricity, electricity sales,

" weather conditions and their effect on sales of electricity as well " current and future litigation, regulatory investigations, proceedings as on prices of energy commodities, or inquiries,

• equipment damage from storms and extreme weather, " other circumstances affecting anticipated operations, electricity

• economic and capital market conditions, including the impact sales and costs, and of inflation or deflation, changes in interest rates, the cost and " other factors discussed elsewhere in this report, including in availability of capital and the market for trading wholesale energy "Item 1A. Risk Factors" and "Item 7. Management's Discussion

• the impact of changes in market conditions on employee benefit and Analysis of Financial Condition and Results of Operations,"

liability calculations, as well as actual and assumed investment and in other reports we file from time to time with the Securities returns on invested plan assets, and Exchange Commission (SEC).

• the impact of changes in estimates regarding our Wolf Creek Generating Station (WVolf Creek) decommissioning obligation, These lists are not all-inclusive because it is not possible to predict

• the ability of our counterparties to make payments as and when all factors. This report should be read in its entirety. No one section due and to perform as required, of this report deals with all aspects of the subject matter. The reader

• the existence or introduction of competition into markets in should not place undue reliance on any forward-looking statement, which we operate, as forward-looking statements speak only as of the date such

• the impact of frequently changing laws and regulations relating statements were made. We undertake no obligation to update any to air emissions, water emissions, waste management and other forward-looking statement to reflect events or circumstances after environmental matters, the date on which such statement was made.

101

WESTAR ENERGY I 2012 ANNUAL REPORT PART 1 The percentage of our retail electricity sales by customer class was as follows.

ITEM 1. BUSINESS Year Ended December 31, 2012 2011 2010 Residential ........................... 34% 35% 35%

GENERAL Commercial .......................... 38% 37% 38%

Industrial ............................ 28% 28% 27%

Overview Total .............................. 100% 100% 100%

We are the largest electric utility in Kansas. Unless the context otherwise indicates, all references in this Annual Report on Fonn Generation Capacity 10-K to "the company," "we,"us,""our" and similar words are to Westar Energy, Inc. and its consolidated subsidiaries. The term We have 6,557 megawatts (MW) of accredited generating capacity "Westar Energy"/refers to Westar Energy, Inc., a Kansas corporation in service. See"Item 2. Properties"for additional information about incorporated in 1924, alone and not together with its consolidated our generating units. While we own wind generation facilities with subsidiaries. an installed design capacity of 149 MW, the intermittent nature of this type of production does not create any appreciable amount of We provide electric generation, transmission and distribution accredited capacity as evidenced by the 1 MW of capacity provided services to approximately 690,000 customers in Kansas. Westar in the table below. Our capacity and net generation by fuel type are Energy provides these services in central and northeastern Kansas, summarized below.

including the cities of Topeka, Lawrence, Manhattan, Salina and Percent Hutchinson. Kansas Gas and Electric Company (KGE), Westar Capacity Percent of Net Generation of Total Energy's wholly owned subsidiary, provides these services in south- Fuel Type (MW) Total Capacity (MWh) Net Generation central and southeastern Kansas, including the city of Wichita. Both Coal ................... 3,425 53% 18,690,690 74%

Nuclear ................ 547 8% 3,893,910 15%

Westar Energy and KGE conduct business using the name Westar Natural gas/diesel ......... 2,584 39% 2,237,640 9%

Energy. Our corporate headquarters is located at 818 South Kansas W ind .................. 1 <1% 438,045 2%

Avenue, Topeka, Kansas 66612. Total ................. 6,557 100% 25,260,285 100%

Strategy We expect to continue operating as a vertically integrated, In addition to owning and leasing the generating capacity regulated, electric utility. We strive to optimize flexibility in our identified in the table above, we also have agreements under which planning and operations to be able to respond to uncertain and we purchase wind generation from facilities with installed design changing conditions. Significant elements of our strategy include capacities totaling approximately 515 MW. In 2012, we purchased maintaining a flexible and diverse energy supply portfolio. In doing 760,807 megawatt hours (MWh) of energy under these agreements.

so, we continue to make environmental upgrades to our coal-fired The installed design capacity of wind generation that we own and power plants, develop renewable generation, build and upgrade from which we purchase totals 664 MW; which reflects about 9%

our electrical infrastructure, and develop systems and programs to of our total generating capacity.

help customers use energy more efficiently. Our aggregate 2012 peak system net load of 5,411 MW occurred on July 25, 2012. Our net generating capacity combined with OPERATIONS firm capacity purchases and sales and potentially interruptible General load, provided a capacity margin of 18% above system peak responsibility at the time of our 2012 peak system net load, which As noted above, we supply electric energy at retail to customers in satisfied Southwest Power Pool (SPP) planning requirements.

Kansas. We also supply electric energy at wholesale to municipalities and electric cooperatives in Kansas, and have contracts for the sale, Under wholesale agreements, we provide firm generating capacity purchase or exchange of wholesale electricity with other utilities. to other entities as set forth below.

Following is the percentage of our revenues by customer Utility(,, Capacity (MW) Expiration classification. Classification of customers as residential, commercial Oklahoma Municipal Power Authority ......... 61 December 2013 ONEOK Energy Services Co .................. 75 December 2015 and industrial requires judgment and our classifications may Midwest Energy, Inc ....................... 120 May 2016 be different from other companies. Assignment of tariffs is not Midwest Energy, Inc ....................... 35 May 2017 dependent on classification. Mid-Kansas Electric Company, LLC............ 174 January 2019 Kansas Power Pool ........................ 50 March 2020 Year Ended December 31, 2012 2011 2010 Midwest Energy, Inc ....................... 150 May 2025 Residential ........................... 32% 32% 32% Other .................................. 13 December 2013 - May 2015 Commercial .......................... 28% 28% 28%

To ta l. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 78 Industrial ............................ 16% 16% 16%

W holesale ........................... 14% 16% 16% Under a wholesale ag'reemcnt that expires in May 2039, we provide base load Transm ission ......................... 9% 7% 7%

capacitý to the ciht of McPherson, Kansas, and in retuan the ciht provides Other ............................... 1% 1% 1%

peaking capacihy to us. During 2012, roe provided approximateli 88 MW Total .............................. 100% 100% 100% to, and received approximateh 148 AW froin, the citil. Vie amount of base load capacitl provided to the citl is based on a fixed prerentage of its annual peak system load. The citil is a .idl requirements customer of Westar Energy.

In addition, the agreementfor the citi, to provide capacity to us is treated as a capital lease. See Note I8 of the Notes to Consolidated FinancialStatementlts, "Leases,"'for additionalinfonnation.

Ill

WESTAR ENERGY I 2012 ANNUAL REPORT Generation Mix Lawrence and Tecumseh Energy Centers: Lawrence and Tecumseh The effectiveness of a fuel to produce heat is measured in British Energy Centers have an aggregate generating capacity of 731 MW.

thermal units (Btu).The higher the Btu content of a fuel, the smaller We purchase PRB coal for these energy centers tinder a contract volume of fuel required to produce a given amount of electricity. We with Arch Coal, Inc., which we expect to provide 100% of the coal measure the quantity of heat consumed during the generation of requirements through 2014. BNSF transports coal for these energy electricity in millions of Btu (MMBtu). centers tinder a contract that expires in December 2013, at which time we plan to enter into a new contract.

Based on MMBtu, our 2012 fuel mix was 76% coal, 15% nuclear and 9% natural gas, with diesel making up less than 1%. Our During 2012, the average delivered cost of coal consumed in the generation mix fluctuates with the operation of Wolf Creek, Lawrence units was approximately $1.92 per MMBtu, or $34.00 per variations in fuel costs, plant availability, customer demand, and the ton. The average delivered cost of coal consumed in the Tecumseh cost and availability of power in the wholesale market. units was approximately $1.88 per MMBtu, or $33.60 per ton.

Fossil Fuel Generation Natural Gas Coal We use natural gas as a primary fuel at our Gordon Evans, Murray Jeffrey Energy Center (JEC: The three coal-fired units at JEC have Gill, Hutchinson, Spring Creek and Emporia Energy Centers, at the an aggregate capacity of 2,155 MW, of which we own or consolidate State Line facility and in the gas turbine units at Tecumseh Energy through a variable interest entity (VIE) a combined 92% share, or Center. We can also use natural gas as a supplemental fuel in the 1,983 MW. We have a long-term coal supply contract with Alpha coal-fired units at Lawrence and Tecumseh Energy Centers. During Natural Resources, Inc. to supply coal to JEC from surface mines 2012, we consumed 23.4 million MvtMBtu of natural gas for a total located in the Powder River Basin (PRB) in Wyoming. The contract cost of $75.0 million, or approximately $3.20 per MMBtu. Natural contains a schedule of minimum annual MMBtu delivery quantities. gas accounted for approximately 9% of the total MMBtu of fuel All of the coal used at JEC is purchased under this contract, we consumed and approximately 15% of our total fuel expense in which expires December 31, 2020. The contract provides for price 2012. From time to time, we may enter into contracts, including the escalation based on certain costs of production. The price for use of derivatives, in an effort to manage the overall cost of natural quantities purchased in excess of the scheduled annual minimum gas. For additional infomnation about our exposure to con-mmodity is subject to renegotiation every five years to provide an adjusted price risks, see"Item 7A. Quantitative and Qualitative Disclosures price for the ensuing five years that reflects the market prices at About Market Risk."

the time of renegotiation. The most recent price adjustment was We maintain a natural gas transportation arrangement for effective January 1, 2013. Hutchinson Energy Center with Kansas Gas Service.The agreement The BNSF Railway Company (BNSF) and Union Pacific Railroad has historically expired on April 30 of each year and is renegotiated Company transport coal to JEC uLnder a long-term rail transportation for an additional one year temn. We meet a portion of our natural contract. The contract term continues through December 31, 2013, gas transportation requirements for Gordon Evans, Murray Gill, at which time we plan to enter into a new contract. The contract Lawrence, Tecumseh and Emporia Energy Centers through firm price is subject to price escalation based on certain costs incurred natural gas transportation capacity agreements with Southern by the railroads. We expect increases in the cost of transporting coal Star Central Gas Pipeline (SSCGP). We meet all of the natural gas due to higher prices for the items subject to contractual escalation. transportation requirements for the State Line facility through a firm transportation agreement with SSCGP.The firm transportation The average delivered cost of coal consumed at JEC during 2012 agreement that serves Gordon Evans and Murray Gill Energy was approximately $1.77 per MMBtu, or $29.24 per ton. Centers extends through April 1, 2020, and the agreement for La Cygne Generating Station (La Cygne): The two coal-fired units Lawrence and Tecumseh Energy Centers expires April 1, 2030. The at La Cygne have an aggregate generating capacity of 1,422 MW, agreement for the State Line facility extends through June 24, 2017, of which we own or consolidate through a VIE a 50% share, or while the agreement for Einporia Energy Center is in place until 711 MW. La Cygne uses primarily PRB coal but one of the two December 1, 2028, and is renewable for five-year terms thereafter.

units mixes a small portion of locally-mined coal. The operator We meet all of the natural gas transportation requirements for Spring of La Cygne, Kansas City Power & Light Company (KCPL), Creek Energy Center through an interruptible month-to-month arranges coal purchases and transportation services for transportation agreement with ONEOK Gas Transportation, LLC.

La Cygne. Approximately 100%, 70% and 20% of La Cygne's Diesel PRB coal requirements are tinder contract for 2013, 2014 and We use No. 2 diesel to start some of our coal generating stations, as 2015, respectively. About 90% of those commitments are fixed a primary fuel in the Hutchinson No. 4 combustion turbine and in price contracts. As the PRB coal contracts expire, we anticipate our diesel generators. We purchase No. 2 diesel in the spot market.

that KCPL will negotiate new supply contracts or purchase coal We maintain quantities in inventory that we believe will allow us on the spot market.

to facilitate economic dispatch of power and satisfy emergency All of the La Cygne PRB coal is transported under KCPUs rail requirements. We do not use significant anmounts of No. 2 diesel in transportation agreements with BNSF through 2013 and Kansas our operations.

City Southern Railroad through 2020. During 2012, our share of average delivered cost of coal consumed at La Cygne was approximately $2.04 per MMBtu, or $35.39 per ton.

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WESTAR ENERGY I 2012 ANNUAL REPORT Nuclear Generation Wind Generation General As discussed under "Environmental Matters-Renewable Energy Wolf Creek is a 1,164 MW nuclear power plant located near Standard" below, Kansas law requires that our energy supply Burlington, Kansas. KGE owns a 47% interest in Wolf Creek, or resources consist of a certain amount of renewable sources. For 547 MW. Wolf Creek's operating license is effective until 2045. us, wind has been the primary source of renewable energy. As of Wolf Creek Nuclear Operating Corporation, an operating com- December 31, 2012, we owned approximately 149 MW of designed pany owned by each of the plant's owners in proportion to their installed wind capacity and had under contract the purchase of ownership share of the plant, operates the plant. The plant's wind energy produced from approximately 515 MW of designed owners pay operating costs equal to their respective ownership installed wind capacity.

in Wolf Creek and pay fuel costs generally equal to the amount of Other Fuel Matters power they take from the plant, which is normally about equal to The table below provides our weighted average cost of fuel, their respective ownership share.

including transportation costs.

Fuel Supply 2012 2011 2010 Wolf Creek has on hand or under contract all of the uranium and Per MMBtu:

conversion services needed to operate through January 2015 and Nuclear ............................ $ 0.70 $ 0.68 $ 0.63 approximately 70% of the uranium and conversion services needed Coal .............................. 1.86 1.74 1.56 Natural gas ......................... 3.20 4.81 5.12 after that date through March 2021. The owners also have under Diesel ............................. 23.12 19.33 15.76 contract all of the uranium enrichment and fabrication services Allgenerating stations ................ 1.84 1.92 1.70 required to operate Wolf Creek through March 2027 and September Per MWh Generation:

Nuclear ............................ $ 7.28 $ 7.15 $ 6.50 2025, respectively. All such agreements have been entered into in Coal .............................. 20.59 19.30 17.45 the ordinary course of business. Natural gas/diesel .................... 33.29 52.65 56.37 Allgenerating stations ................ 19.65 20.60 18.37 Operations and Regulation We expect future increases in Wolf Creek's operating costs due to Our wind production has no associated fuel costs and is, therefore, increased NRC oversight and efforts to comply with new industry- not included in the table above.

wide regulations adopted by the NRC in 2012. Plant perfomnance, Purchased Power including extended or unscheduled shutdowns of Wolf Creek, could cause us to purchase replacement power, rely more heavily In addition to generating electricity, we also purchase power.

on our other generating units and/or reduce amounts of power Factors that cause us to make such purchases include contractual available for us to sell in the wholesale market. Plant performance arrangements, planned and unscheduled outages at our generating also affects the degree of regulatory oversight and related costs. plants, favorable wholesale energy prices compared to our costs of production, weather conditions and other factors. Transmission Wolf Creek normally operates on an 18-month planned refueling constraints may limit our ability to bring purchased electricity into and maintenance outage schedule. However, as a result of an our control area, potentially requiring us to curtail or interrupt our extended Unscheduled outage in 2012 and resulting fuel remaining customers as pemnitted by our tariffs. In 2012, purchased power Wolf Creek was able to defer its next refueling and maintenance comprised approximately 18% of our total fuel and purchased outage until the first quarter of 2013. As authorized by our power expense. Our weighted average cost of purchased power per regulators, incremental maintenance costs of planned refueling MWh was $26.41 in 2012, $34.27 in 2011 and $36.23 in 2010.

and maintenance outages are deferred and amortized ratably over the period between planned outages. During outages at the plant, Transmission we meet our electric demand primarily with our other generating Regional Transmission Organization units and by purchasing power. The Federal Energy Regulatory Commission (FERC) requires The NRC evaluates, monitors and rates various inspection owners of regulated transmission assets to allow third parties findings and performance indicators for Wolf Creek based on nondiscriminatory access to their transmission systems. We are a member of the SPP RTO and transferred the functional control of safety significance. Although not expected, the NRC could impose an unscheduled plant shutdown due to security or safety our transmission system, including the approval of transmission concerns. Those concerns need not be related to Wolf Creek service, to the SPP. The SPP coordinates the operation of our specifically, but could be due to concerns about nuclear power transmission system within an interconnected transmission system that covers all or portions of nine states. The SPP collects revenues generally or circumstances at other nuclear plants in which we for the use of each transmission owner's transmission system.

have no ownership.

Transmission customers transmit power purchased and generated See Note 13 of the Notes to Consolidated Financial Statements, for sale or bought for resale in the wholesale market throughout "Commitments and Contingencies,"for additional information the entire SPP system.Transmission capacity is sold on a first come/

regarding our nuclear operations. first served non-discriminatory basis. All transmission customers 113

WESTAR ENERGY 1 2012 ANNUAL REPORT are charged rates applicable to the transmission system in the zone permits, we could be fined or otherwise sanctioned by regulators, where energy is delivered, including transmission customers that and such fines or sanctions may not be recoverable in our prices.

may sell power inside our certificated service territory. The SPP We have incurred and will continue to incur significant capital then distributes as revenue to transmission owners the amounts it and other expenditures to comply with environmental laws and collects from transmission users less an amount it retains to cover regulations. We are currently permitted to recover certain of these administrative expenses. costs through the environmental cost recovery rider (ECRR), which, in comparison to a general rate review, reduces the amount of time Real-Time Energy Imbalance Market it takes to begin collecting in retail prices the costs associated with The SPP currently utilizes a real-time energy imbalance market to capital expenditures for qualifying environmental improvements.

accommodate financial settlement of energy imbalances within However, there can be no assurance that the costs to comply with the SPP region. The objective of the real-time market is to permit existing or future environmental laws and regulations will not have an efficient balancing of energy production and consumption a material effect on our operations or consolidated financial results.

through the use of a least-cost economic dispatch system. It also Certain key environmental issues, laws and regulations facing us provides a ready market for the purchase and sale of electricity to are described further below.

balance production with demand. We are an active participant in this market. Air Emissions We must comply with the federal Clean Air Act, state laws and Developing Forward Market in SPP implementing federal and state regulations that impose, among The SPP is developing an integrated market similar to some other things, limitations on emissions generated from our generating neighboring RTOs. The goal of the SPP integrated market is to facilities, including sulfur dioxide (SO,), particulate matter (PM),

reduce the overall production cost for the SPP region. The new nitrogen oxides (NOx), carbon monoxide (CO), mercury and market is expected to begin in March 2014. We expect it to change acid gases.

the way our plants are dispatched.

Emissions from our generating facilities, including PM, SO 2 and Regulation and Our Prices NOx, have been determined by regulation to reduce visibility by Kansas law gives the Kansas Corporation Commission (KCC) causing or contributing to regional haze. Under federal laws, such general regulatory authority over our prices, extensions and as the Clean AirVisibility Rule, and pursuant to an agreement with abandonments of service and facilities, the classification of accounts, the Kansas Department of Health and Environment (KDHE) and the issuance of some securities and various other matters. We are the Environmental Protection Agency (EPA), we are required to also subject to the jurisdiction of FERC, which has authority over install, operate and maintain controls to reduce emissions found to wholesale electricity sales, including prices, the transmission of cause or contribute to regional haze.

electric power, and the issuance of some securities. We are subject Sulfur Dioxide and Nitrogen Oxide to the jurisdiction of the NRC for nuclear plant operations and safety. Regulatory authorities have established various methods Through the combustion of fossil fuels at our generating facilities, permitting adjustments to our prices for the recovery of costs. For we emit SO. and NOx. Federal and state laws and regulations, portions of our cost of service, regulators allow us to adjust our including those noted above, and permits issued to us limit the prices periodically through the application of formulae that track amount of these substances we can emit. If we exceed these limits changes in our costs, which reduce the time between making we could be subject to fines and penalties. In order to meet SO~and expenditures or investments and reflecting them in the prices we NOx regulations applicable to our generating facilities, we use charge customers. However, for the remaining portions of our cost low-sulfur coal and natural gas and have equipped some of our of service, we must file a general rate review, which lengthens the generating facilities with equipment to control such emissions.

period of time between when we make and recover expenditures We are subject to the SO, allowance and trading program under the and a return on our investments. See Note 3 of the Notes to federal Clean Air Act Acid Rain Program. Under this program, the Consolidated Financial Statements,"Rate Matters and Regulation," EPA allocates annual SO, emissions allowances to emitting units for information regarding our rate proceedings with the KCC subject to the program. Each unit must have enough allowances and FERC. to cover its SO, emissions for that year. Allowances are tradable so Environmental Matters that operators of affected units that are anticipated to emit SO, in excess of their allowances may purchase additional allowances from General others. In 2012, we had SO. allowances adequate to meet planned We are subject to various federal, state and local environmental generation and we expect to have enotigh to cover emissions under laws and regulations. Environmental laws and regulations affecting this program in 2013.

our operations are overlapping, complex, subject to changes, have become more stringent over time and are expensive to implement. Cross-State Air Pollution Rule Such laws and regulations relate primarily to air quality, water In mid 2011, the EPA finalized the Cross-State Air Pollution Rule quality, the use of water, and the handling, disposal and clean-up of (CSAPR) requiring 28 states, including Kansas, Missouri and hazardous and non-hazardous substances and wastes. These laws Oklahoma, to further reduce power plant emissions of SO, and and regulations require a lengthy and complex process for obtaining NOx. Under CSAPR, reductions in annual SO 2 and NOx emissions licenses, permits and approvals from governmental agencies for new, were required to begin January 2012, with further reductions existing or modified facilities. If we fail to comply with such laws, required beginning January 2014. The EPA also published a final regulations and permits, or fail to obtain and maintain necessary supplemental rule to CSAPR later in 2011 requiring five states, 141

WESTAR ENERGY 1 2012 ANNUAL REPORT including Missouri and Oklahoma, to make summertime reductions obtained approval from our state environmental regulatory agency in NOx emissions beginning in May 2012. Although Kansas was and expect to be compliant with the new standards within four included in the original proposed rule, the final supplemental rule years. We continue to evaluate the new standards and believe that instead called for the EPA to revisit Kansas' status once Kansas our related investment will be less than $16.0 million.

submitted an ozone state implementation plan. In August 2012, the U.S. Court of Appeals for the District of Columbia Circuit Greenhouse Gases vacated CSAPR and remanded the rule to the EPA to promulgate One byproduct of burning coal and other fossil fuels is th e emission a replacement. In October 2012, the EPA filed a petition with the of carbon dioxide (CO,) and other gases referred to as greenhouse court requesting a rehearing before the full court. In January 2013, gases (GHGs), which are believed by many to contribute to climate the court issued orders declining to rehear the case. We cannot change. Legislators, including the U.S. Congress, have at times at this time predict how the EPA may proceed with rulemaking; considered the passage of laws to limit the emission of CO 2 and however, based on our current and planned environmental other GHGs. It is possible that federal legislation related to GHG controls, if the regulations were to be reinstated or replaced, either emissions will be considered, and promulgated, by legislators in the in part or in whole, we do not believe the impact on our operations next few years. The EPA has also proposed using the federal Clean and consolidated financial results would be material. Air Act to limit CO, and other GHG emissions, and other measures are being imposed or offered by individual states, municipalities National Ambient Air Quality Standards and regional agreements with the goal of reducing GHG emissions.

Under the federal Clean Air Act, the EPA sets National Ambient In March 2012, the EPA proposed a New Source Performance Air Quality Standards (NAAQS) for certain emissions considered Standard (NSPS) that would limit CO2 emissions for new and harmful to public health and the environment, including PM, modified electric generating units. We are currently evaluating the NOx, CO and SO., which result from fossil fuel combustion. Areas proposal and believe it could impact our future generation plans if meeting the NAAQS are designated attainment areas while those it becomes a final rule. The EPA has indicated that a final rule could that do not meet the NAAQS are considered nonattainment areas.

be issued in 2013. The EPA is also expected to propose a GHG Each state must develop a plan to bring nonattainment areas into NSPS for existing generating units. We cannot at this time determine compliance with the NAAQS. NAAQS must be reviewed by the the impact of such a performance standard on our operations and EPA at five-year intervals. KDHE proposed to designate portions consolidated financial results, but we believe the costs to comply of the Kansas City area nonattainment for the eight-hour ozone couild be material.

standard, which has the potential to impact our operations.The EPA has not acted on KDHE's proposed designation of the Kansas City Under regulations known as the Tailoring Rule, the EPA is regulating area and it is uncertain when, or if, such a designation might occur. GHG emissions from certain stationary sources.The regulations are The Wichita area also exceeded the eight-hour ozone standard being implemented pursuant to two federal Clean Air Act programs and could be designated nonattainment in the future potentially which impose recordkeeping and monitoring requirements and impacting our operations. also mandate the implementation of best available control technology (BACT) for projects that cause a significant increase in In December 2012, the EPA strengthened an existing NAAQS for PM. The EPA anticipates making initial attainment/nonattainment GHG emissions (defined to be more than 75,000 tons or more per year or 100,000 tons or more per year, depending on various factors).

designations under this rule by the end of 2014. We are currently The EPA has issued guidance on what BACT entails for the control evaluating the rule, however, we cannot at this time predict the impact it may have on our operations or consolidated financial of GHGs and individual states are now required to determine what controls are required for facilities within their jurisdiction on a results, but it could be material.

case-by-case basis. We cannot at this time determine the impact In 2010, the EPA strengthened the NAAQS for both NOx and of these regulations on our operations and consolidated financial SO,. We continue to communicate with our regulators regarding results, but we believe the costs to comply with the regulations these standards and are currently evaluating what impact could be material.

this could have on our operations. If we are required to install additional equipment to control emissions at our facilities, the Water revised NAAQS could have a material impact on our operations We discharge some of the water used in our operations. This and consolidated financial results. water may contain substances deemed to be pollutants. The EPA delayed its plans to propose revisions to the rules governing such The EPA is required to review the NAAQS for ozone in 2013 and is discharges from coal-fired power plants to 2013 with final action on likely to propose a more stringent standard. the proposed rules expected to occur in 2014. Although we cannot Mercury and Other Air Emissions at this time determine the timing or impact of any new regulations, more stringent regulations could have a material impact on our The operation of power plants results in emissions of mercury, acid operations and consolidated financial results.

gases and other air toxics. In 2011, the EPA finalized Mercury and Air Toxics Standards (MATS) for power plants, which replaces the prior In 2011, the EPA issued a proposed rule that would set stricter federal Clean Air Mercury Rule and requires significant reductions technology standards for cooling water intake structures at power in emissions of mercury, acid gases and other emissions. Companies plants over concerns about impacts to aquatic life. We are currently impacted by the new standards will have up to three, or four years evaluating the proposed rule as well as recent nationally-issued with approval from a state environmental regulatory agency, and in information requests from the EPA. The EPA is expected to finalize certain limited circumstances tip to five years, to comply. We have the rule in 2013; however, because the rule has yet to be finalized, 115

WESTAR ENERGY I 2012 ANNUAL REPORT we cannot predict the impact it may have on our operations or between making these investments and having them reflected consolidated financial results, but it could be material. in the prices we charge our customers, as well as the amount we charge our customers. We plan to file an abbreviated rate review Because Kansas is in a severe drought and water remains a critical in April 2013 for recovery of our capital investment of approxi-resource to our business, as well as the State economy, we have mately $350.0 million of our share of the La Cygne environmental increased our attention to water quantity matters. We will continue upgrades.

to refine our contingency plans should the drought persist.

Our estimated capital expenditures associated with environmental Regulation of Coal Combustion Byproducts improvements for 2013-2015 appear in the following table. We In the course of operating our coal generation plants, we produce prepare these estimates for planning purposes and revise them coal combustion byproducts (CCBs), including fly ash, gypsum and from time to time.

bottom ash, which we must handle, recycle, process or dispose Year Total of. We recycle some of our ash production, principally by selling to the aggregate industry. In 2010, the EPA proposed a rule to (InThousands) regulate CCBs, which we believe might impair our ability to recycle 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 311,2 00 20 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9,50 0 ash or require additional CCB handling, processing and storage 20 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2,6 0 0 equipment, or both.The EPA is expected to issue a final rule in 2014 To ta l. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64 3,3 0 0 or sooner. While we cannot at this time estimate the impact and costs associated with future reggulations of CCBs, we believe the impact on our operations and consolidated financial results could In addition to the capital investment, in the event we install new be material. equipment, such equipment may cause us to incur significant increases in annual operating and maintenance expenses and may Renewable Energy Standard reduce the net production, reliability and availability of the plants.

Kansas law mandates that we maintain a minimum amount of Furthermore, enhancements to our power plants, even if they result renewable energy sources. Through 2015 net renewable generation in greater efficiency, can tigger a new source review, which could capacity must be 10% of the average peak demand for the three require additional control equipment. In order to change our prices prior years, subject to limited exceptions. This requirement to recognize increased operating and maintenance costs, we must increases to 15% for years 2016 through 2019 and 20% for 2020 file a general rate review with the KCC.

and thereafter. In 2012, we began purchasing under 20-year supply EPA Consent Decree contracts the renewable energy produced from approximately 370 MW of additional wind generation, which, together with As part of a 2010 settlement of a lawsuit filed by the Department existing facilities, supply contracts and renewable energy credits, of Justice on behalf of the EPA, we are installing selective catalytic will allow us to satisfy the net renewable generation requirement reduction (SCR) equipment on one of three JEC coal units by through 2015 and contribute toward meeting the increased the end of 2014, which we estimate will cost approximately requirements beginning in 2016. If we are unable to meet future $240.0 million. The settlement also required that we determine requirements, our operations and consolidated financial results whether we needed to install additional SCR equipment on could be adversely impacted. another JEC unit or if we can meet agreed upon plant-wide NOx emissions reduction limits using other controls. We have Environmental Costs informed the EPA that we believe we can meet the terms of the As discussed above, environmental laws and regulations affecting settlement by installing less expensive NOx reduction equipment our operations are evolving and becoming more stringent. As a rather than additional SCR equipment. We plan to complete these result, we are making and will continue to make significant capital projects in 2014 and recover the costs to install these systems expenditures to reduce regulated emissions. The amount of these through our ECRR, but such recovery remains subject to the expenditures could change materially depending on the timing approval of our regulators.

and nature of required investments, the specific outcomes resulting Safety and Health Regulation from existing regulations, new regulations, legislation and the manner in which we operate our plants. The degree to which we The safety and health of our employees is vital to our business. We will need to reduce certain emissions and the timing of when such are subject to a number of federal and state laws and regulations, emissions controls may be required is uncertain. Additionally our including the Occupational Safety and Health Act of 1970, whose ability to access capital markets and the availabilit, of materials, purpose is to protect the safety and health of workers. We believe equipment and contractors may affect the timing and amount of we have appropriate measures in place to ensure the safety and these capital investments. health of our employees and to monitor compliance with such laws and regulations.

We are not allowed to use the ECRR to collect our approximately

$610.0 million share of the costs associated with the $1.2 billion of Information Technology environmental upgrades at La Cygne. We therefore must file for Safeguarding information technology networks and systems is a general review of our rates or an abbreviated rate review with important to our business. There are risks associated with the the KCC in order to collect these costs, which increases the time unauthorized access, theft or accidental release of electronic data, 161

WESTAR ENERGY 1 2012 ANNUAL REPORT which may result in the misappropriation or corruption of our EMPLOYEES information or cause operational disruptions. We believe these As of February 19, 2013, we had 2,313 employees, 1,269 of which risks are getting increasingly larger and more sophisticated. We were covered by a contract with Locals 304 and 1523 of the believe that we have taken appropriate measures to secure our International Brotherhood of Electrical Workers that extends information infrastructure from attacks or breaches and from through Jmne 30, 2013.

accidental release of information, but notwithstanding such measures, the increasing sophistication of potential attacks may result in remaining vulnerabilities. See Item 1A,"Risk Factors,"for ACCESS TO COMPANY INFORMATION additional information. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K are available free of SEASONALITY charge either on our Internet website at www.westarenergy.com or through requests addressed to our investor relations department.

Our electricity sales and revenues are seasonal, with the third These reports are available as soon as reasonably practicable after quarter typically accounting for the greatest of each. Our electricity such material is electronically filed with, or furnished to, the SEC.

sales are impacted by weather conditions, the economy of our The information contained on our Internet website is not part of service territory and other factors affecting customers' demand for this document.

electricity.

EXECUTIVE OFFICERS OF THE COMPANY Name Age Present Office Other Offices or Positions Held During the Past Five Years Mark A. Ruelle 51 Director, President and Chief Executive Officer Westar Energy, Inc.

(since August 2011) Director, President and Chief Financial Officer (May 2011 to July 2011)

Executive Vice President and Chief Financial Officer (January 2003 to April 2011)

James J. Ludwig 54 Executive Vice President, Public Affairs and Consumer Services (since July 2007)

Douglas R. Sterbenz 49 Executive Vice President and Chief Operating Officer (since July 2007)

Greg A. Greenwood 47 Senior Vice President, Strategy (since August 2011) Westar Energy, Inc.

Vice President, Major Construction Projects (December 2009 to July 2011)

Vice President, Generation Construction (August 2006 to December 2009)

Anthony D. Somma 49 Senior Vice President, Chief Financial Officer and Westar Energy, Inc.

Treasurer (since August 2011) Vice President, Treasurer (February 2009 to July 2011)

Treasurer (August 2006 to February 2009)

Jeffrey L.Beasley 54 Vice President, Corporate Compliance and Internal Audit (since September 2007)

Larry D. Irick. 56 Vice President, General Counsel and Corporate Secretary (since February 2003)

Lee Wages 64 Vice President, Controller (since December 2001)

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

117

WESTAR ENERGY I 2012 ANNUAL REPORT ITEM 1A. RISK FACTORS in implementing changes to our prices or terms of service. There can be no assurance that our regulators will find all of our costs We operate in market and regulatory environments that involve to have been prudently incurred. A finding that costs have been significant risks, many of which are beyond our control. In addition imprudently incurred can lead to disallowance of recovery for those to other information in this Form 10-K, including"Item 1.Business" costs. Further, the prices approved by the applicable regulatory and "Item 7. Management's Discussion and Analysis of Financial body may not be sufficient for us to recover our costs and to provide Condition and Results of Operations,"and in other documents we for an adequate return on and of capital investments.

file with the SEC from time to time, the following factors may affect our results of operations, our cash flows and the market prices We cannot predict the outcome of any rate review or the actions of our publicly traded securities. These factors may cause results of our regulators. The outcome of rate proceedings, or delays in to differ materially from those expressed in any forward-looking inplementing price changes to reflect changes in our costs, could statements made by us or on our behalf.The factors listed below are have a material affect on our consolidated financial results.

not intended to be an exhaustive discussion of all such risks, and Our costs of compliance with environmental laws the statements below must be read together with factors discussed and regulations are significant, and the future costs of elsewhere in this document and in our other filings with the SEC. compliance with environmental laws and regulations could adversely affect our operations and consolidated Weather conditions, including mild and severe weather, financial results.

may adversely impact our consolidated financial results.

We are subject to extensive federal, state and local environmental Weather conditions directly influence the demand for electricity.

statutes, rules and regulations relating to air quality, water quality, Our customers use electricity for heating in winter months and the use of water, the handling, disposal and clean-up of hazardous cooling in summer months. Because of air conditioning demand, and non-hazardous substances and wastes, natural resources, typically we produce our highest revenues in the third quarter.

and health and safety. Compliance with these legal requirements, Milder temperatures reduce demand for electricity and have a which change frequently and have tended to become more corresponding affect on our revenues. Unusually mild weather in restrictive, requires us to commit significant capital and operating the future could adversely affect our consolidated financial results. resources toward permitting, emission fees, environmental In addition, severe weather conditions can produce storms that monitoring, installation and operation of air and water quality can inflict extensive damage to our equipment and facilities which control equipment, and purchases of air emission allowances and/

can require us to incur additional operating and maintenance or offsets.

expense and additional capital ex'penditures. Our prices may not Costs of compliance with environmental laws and regulations or always be adjusted timely and adequately to reflect these higher fines or penalties resulting from non-compliance, ifnot recovered in costs. Additionally, because many of our power plants use water our prices, could adversely affect our operations and/or consolidated for cooling, persistent or severe drought conditions could result in financial results, especially if emission and/or discharge limits are limited power production. High water conditions can also impair tightened, more extensive permitting requirements are imposed, planned deliveries of fuel to our plants. additional substances become regulated and the number and Our prices are subject to regulatory review and may types of assets we operate increases. We cannot estimate our not prove adequate to recover our costs and provide compliance costs or any possible fines or penalties with certainty, a fair return. or the degree to which such costs might be recovered in our We must obtain from state and federal regulators the authority to prices, due to our inability to predict the requirements and timing establish terms and prices for our services. The KCC and, for most of implementation of environmental rules or regulations. See of our wholesale customers, FERC, use a cost-of-service approach "Item 7 Management's Discussion and Analysis of Financial that takes into account operating expenses, fixed obligations and Condition and Results of Operations - Executive Summary -

recovery of and return on capital investments. Using this approach, Current Trends - Environmental Regulation - Air Emissions" the KCC and FERC set prices at levels calculated to recover such for additional information.

costs and a pennitted return on investment. Except for wholesale In addition, we combust large amounts of fossil fuels as we transactions for which the price is not so regulated, and except produce electricity. This results in significant emissions of CO. and to the extent the KCC and FERC permit us to modify our prices other GHGs through the operation of our power plants. Federal through the application of formulae that track changes in certain of legislation has been in the past and is expected in the future be our costs, our prices generally remain fixed until changed following introduced in Congress to regulate the emission of GHGs and a rate review. Further, the adjustments may be modified, limited numerous states and regions have adopted programs to stabilize or or eliminated by regulatory or legislative actions. We may apply to reduce GHG emissions.

change our prices or intervening parties may request that our prices be reviewed for possible adjustment. The EPA regulates GHGs under the Clean Air Act. Under regulations finalized in 2010, the EPA is regulating GHG emissions Rate proceedings through which our prices and terms of service are from certain stationary sources, such as power plants. Under the determined typically involve numerous parties including electricity current regulations, any source that emits at least 75,000 tons per consumers, consumer advocates and governmental entities, some year of GHGs is required to have aTitleV operating permit tunder the of whom take positions adverse to us. In addition, regulators' Clean Air Act. Sources that already have aTitleV permit would have decisions may be appealed to the courts by us or other parties to GHG provisions added to their permits upon renewal. Additionally, the proceedings. These factors may lead to uncertainty and delays Prevention of Significant Deterioration Program permits for new 181

WESTAR ENERGY I 2012 ANNUAL REPORT major sources of GHG emissions and GHG sources that undergo We are exposed to various risks associated with the major modifications are required to implement BACG for the ownership and operation of Wolf Creek, any of which control of GHG emissions. The EPA has issued guidance on what could adversely impact our consolidated financial results.

BACT entails for the control of GHGs and individual states are now Through KGE's ownership interest in Wolf Creek, we are subject to required to determine what controls are required for facilities within the risks of nuclear generation, which include:

their jurisdiction on a case-by-case basis. These regulations could " the risks associated with storing, handling and disposing of have a material impact on our operations or require us to incur radioactive materials and the current lack of a long-term off-site substantial costs. Additionally, in March 2012, the EPA proposed disposal solution for radioactive materials; an NSPS that would limit CO, emissions for new and modified " limitations on the amounts and types of insurance conmunercially electric generating units.This proposal is expected to become a final available to cover losses that might arise in connection with rule in 2013. We are currently evaluating the proposal and believe nuclear operations; it could impact our future generation plans if it becomes a final " uncertainties with respect to the technological and financial rule. In addition, the EPA is also expected to propose in the future aspects of decommissioning Wolf Creek at the end of its life; and a GHG NSPS for existing units that could have a material impact " costs of measures associated with public safety.

on our operations.

The NRC has authority to impose licensing and safety-related Further, in the course of operating our coal generation plants, we requirements for the operation of nuclear generation facilities. In produce CCBs, including fly ash, gypsum and bottom ash, which we the event of non-compliance, the NRC has authority to impose must handle, recycle, process or dispose of. We recycle some of our fines or shutdown a unit, or both, depending upon its assessment ash production, principally by selling to the aggregate industry. In of the severity of the situation, until compliance is achieved.

2010, the EPA proposed a rule to regulate CCBs, which we believe Revised safety requirements enacted by the NRC could necessitate might impair our ability to recycle ash or require additional CCB handling, processing and storage equipment, or both. The EPA is substantial capital expenditures at Wolf Creek.

expected to issue a final rule in 2014 or sooner. While we cannot If an incident did occur at Wolf Creek, it could have a material at this time estimate the inmpact and costs associated with future affect on our consolidated financial results. Furthermore, the non-regulations of CCBs, we believe the impact on our operations and compliance of other nuclear facilities operators with applicable consolidated financial results could be material. regulations or the occurrence of a serious nuclear incident at other facilities anyvhere in the world could result in increased regulation We could be subject to penalties as a result of mandatory reliability standards, which could adversely affect our of the industry as a whole, which could in turn increase Wolf consolidated financial results. Creek's compliance costs and impact our consolidated financial As a result of the Energy Policy Act of 2005, owners and operators of results. Such events could also result in a shutdown of Wolf Creek.

the bulk power transmission system, including Westar Energy and In addition, in the event of an extended or unscheduled outage at KGE, are subject to mandatory reliability standards promulgated by Wolf Creek, we would be required to generate power from more the North American Electric Reliability Corporation and enforced costly generating units, purchase power in the open market to by FERC. If we were found to be out of compliance with the replace the power normally produced at Wolf Creek and have less mandatory reliability standards, we could be subject to sanctions, power available for sale into the wholesale market. If we were including substantial monetary penalties, which we might not be unable to recover these costs in the prices we charge customers, such able to recover in the prices we charge our customers. This could events would likely have an adverse impact on our consolidated have a material affect on our consolidated financial results. financial results.

Adverse economic conditions could adversely impact our Significant decisions about capital investments are operations and consolidated financial results. based on forecasts of long-term demand for energy Our operations are affected by economic conditions. Adverse incorporating assumptions about multiple, uncertain general economic conditions including a prolonged recession or factors. Our actual experience may differ significantly capital market disruptions may: from our assumptions, which may adversely impact our consolidated financial results.

" reduce demand for our service; We attempt to forecast demand to determine the timing and

" increase delinquencies or non-payment by customers;

" adversely impact the financial condition of suppliers, which may adequacy of our energy and energy delivery resources. Long-term forecasts involve risks because they rely on assumptions in turn limit our access to inventory or capital equipment or we make concerning uncertain factors including weather, increase our costs; and

" increase deductibles and premiums and result in more restrictive technological change, environmental and other regulatory policy terms under insurance policies regarding risks we typically requirements, economic conditions, social pressures and the insure against, or make insurance claims more difficult to collect. responsiveness of customers' electricity demand to conservation measures and prices. Actual future demand and our ability to In the opposite, unexpectedly strong economic conditions can satisfy such demand depends on these and other factors and result in increased costs and shortages. Any of the aforementioned may vary materially from our forecasts. If our actual experience events, and others we may not be able to identify, could have an varies significantly from our forecasts, our consolidated financial adverse inmpact on our consolidated financial results. results may be adversely affected.

119

WESTAR ENERGY I 2012 ANNUAL REPORT Our planned capital investment for the next few of future liabilities. In general, when interest rates decline, the value years is large in relation to our size, subjecting us of future liabilities increase. While the KCC allows us to implement to significant risks. a regulatory accounting mechanism to track certain of our employee Our anticipated capital expenditures for 2013 through 2015 are benefit plan expenses, this mechanism does not allow us to make approximately $2.3 billion. In addition to risks discussed above automatic price adjustments. Only in future rate proceedings may associated with recovering capital investments through our prices, we be allowed to adjust our prices to reflect changes in our funding and risks associated with our reliance on the capital markets and requirements. Further, the tracking mechanism for these benefit short-term credit to fund those investments, our capital expenditure plan expenses is part of our overall rate structure, and as such program poses risks, including, but not necessarily limited to: it is subject to KCC review and may be modified, limited

" shortages, disruption in the delivery and inconsistent quality of or eliminated in the future. If these assets are not managed equipment, materials and labor; successfully, our consolidated financial results and cash flows could

" contractor or supplier non-performance; be adversely affected.

" delays in or failure to receive necessary permits, approvals and Security breaches, criminal activity, terrorist attacks other regulatory authorizations; and other disruptions to our information technology

" impacts of new and existing laws and regulations, including infrastructure could directly or indirectly interfere with environmental and health and safety laws, regulations and our operations, could expose us or our customers or permit requirements; employees to a risk of loss, and could expose us to liability, regulatory penalties, reputational damage and

" adverse weather; other harm to our business.

" unforeseen engineering problems or changes in project design We rely upon information technology networks and systems to or scope;

" environmental and geological conditions; and process, transmit and store electronic information, and to manage "unanticipated cost increases with respect to labor or materials, or support a variety of business processes and activities, including including basic commodities needed for our infrastructure such the generation, transmission and distribution of electricity, supply as steel, copper and aluminum.

chain functions, and the invoicing and collection of payments from our customers. We also use information technology systems to These and other factors, or any combination of them, could cause record, process and summarize financial information and results us to defer or limit our capital expenditure program and could of operations for internal reporting purposes and to comply with adversely impact our consolidated financial results. financial reporting, legal and tax requirements. Our technology networks and systems collect and store sensitive data including Our ability to fund our capital expenditures and meet our system operating information, propriety business information working capital and liquidity needs may be limited by conditions in the bank and capital markets or by our credit belonging to us and third parties, and personal information ratings or the market price of Westar Energy's common belonging to our customers and employees.

stock. Further, capital market conditions can cause fluctuations in the values of assets set aside for employee Our information technology networks and infrastructure may be benefit obligations and the Wolf Creek nuclear vulnerable to damage, disruptions or shutdowns due to attacks decommissioning trust (NDT) and may increase our by hackers or breaches due to employee error or malfeasance, funding requirements related to these obligations. or other disruptions during software or hardware upgrades, To fund our capital expenditures and for working capital and telecormmunication failures or natural disasters or other catastrophic liquidity, we rely on access to capital markets and to short-term events. The occurrence of any of these events could impact the credit. Disruption in capital markets, deterioration in the financial reliability of our generation, transmission and distribution systems; condition of the financial institutions on which we rely any credit could expose us, our customers or our employees to a risk of rating downgrade or any decrease in the market price of Westar loss or misuse of information; and could result in legal claims or Energy's common stock may make capital more difficult and costly proceedings, liability or regulatory penalties against us, damage our for us to obtain, may restrict liquidity available to us, may require reputation or otherwise harm our business. We cannot accurately us to defer or limit capital investments or impact operations, assess the probability that a security breach may occur, despite the or may reduce the value of our financial assets. These and other measures that we take to prevent such a breach, and we are unable related affects may have an adverse impact on our business and to quantify the potential impact of such an event. We can provide consolidated financial results, including our ability to pay dividends no assurance that we will identify and remedy all security or system and to make investments or undertake programs necessary to meet vulnerabilities or that unauthorized access or error will be identified regulatory mandates and customer demand. and remedied.

Further, we have significant future financial obligations with respect Additionally, we cannot predict the impact that any future to employee benefit obligations and the Wolf Creek NDT.The value information technology or terrorist attack may have on the energy of the assets needed to meet those obligations are subject to market industry in general. Our facilities could be direct targets or indirect fluctuations and will yield uncertain returns, which may fall below casualties of such attacks. The effects of such attacks could include our expectations, upon which we plan to meet our obligations. disruption to our generation, transmission and distribution systems of Additionally, inflation and changes in interest rates affect the value or to the electrical grid in general, and could increase the cost insurance coverage or result in a decline in the U.S. economy.

201

WESTAR ENERGY I 2012 ANNUAL REPORT Equipment failures and other events beyond our control Unit Capacity (MW) ByOwner may cause extended or unplanned plant outages, which Unit Year Principal Westar Total may adversely impact our consolidated financial results. Name/Location No. Installed Fuel Energy KGE Company The generation, distribution and transmission of electricity require Murray Gill Energy Center:

the use of expensive and complicated equipment, much of which Wichita, Kansas is aged, and all of which requires significant ongoing maintenance. Steam Turbines 1 1952 Gas - 37 37 2 1954 Gas - 48 48 Our power plants and equipment are subject to extended or 3 1956 Gas - 93 93 unplanned outages because of equipment failure, weather, 4 1959 Gas - 90 90 transmission system disruption, operator error, contractor or Spring Creek Energy Center:

subcontractor failure and other factors beyond our control. In such Edmond, Oklahoma events, we must either produce replacement power from our other Combustion Turbines 1I'd 2001 Gas 68 - 68 plants, which may be less efficient or more expensive to operate, 2 d' 2001 Gas 68 - 68 3111 2001 Gas 66 - 66 purchase power from others at unpredictable and potentially 4"11 2001 Gas 67 - 67 higher costs in order to meet our sales obligations, or suffer outages.

State Line (40%):

Such events could also limit our ability to make sales to customers. Joplin, Missouri Therefore, the occurrence of extended or unplanned outages could Combined Cycle 2-1 ,1 2001 Gas 64 - 64 adversely affect our consolidated financial results. 2 -2 "'1 2001 Gas 65 - 65 2-3'b1 2001 Gas 72 - 72 Tecumseh Energy Center:

ITEM lB. UNRESOLVED STAFF COMMENTS Tecumseh, Kansas Steam Turbines 7 1957 Coal 70 - 70 None. 8 1962 Coal 127 - 127 Wolf Creek Generating Station (47%):

ITEM 2. PROPERTIES Burlington, Kansas Nuclear 15b) 1985 Uranium - 547 547 Unit Capacity (MW) ByOwner Total 4,076 2,481 6,557 Unit Year Principal Westar Total Name/Location No. Installed Fuel Energy KGE Company Central Plains Wind Farm "WestarEnegyu owns Central Plains WVind Farm, which has an installed design Wichita County, Kansas (1) 2009 Wind - - - capacitl of 99 M11V Westar Eniergy owns 50% and purchases the other 50%

of the genCratioi firom Flat Ridge Wind Farmn pursuant to a purchase power Emporia Energy Center:

as1reemmmemmtwoith BP Altcenative Enemmn Nor/th. Ii total, it has an installed design Emporia, Kansas Combustion Turbines 1 2008 Gas 45 - 45 eapacitl of 10O0 M'W 2 2008 Gas 45 - 45 ,WVcstar Energy jointly owons State Line (40%) while KGE jointhl owns La 3 2008 Gas 44 - 44 Cygle unit 1 (50%) and Wolf Creek (47%). We jointly own and consolidate 4 2008 Gas 46 - 46 as a VIE 92% of JEC. Unit capacitl amounts reflect our owneirship and leased 5 2008 Gas 157 - 157 percentages only.

6 2009 Gas 153 - 153 " In 1987, KGE entered into a sale-leaseback transaction involving its 50%

7 2009 Gas 156 - 156 interest in the La Cygmze unit 2. We consolidate the leasing entitll as a VIE as discussed in Note 17 of the Notes to Consolidated Financial Statements, Flat Ridge Wind Farm "VaTriable Interest Entities."

Barber County, Kansas 0, 2009 Wind 1 - 1

,,Ve acquiredSprimng Creek Eniergm Center in 2006.

Gordon Evans Energy Center:

Colwich, Kansas Steam Turbines 1 1961 Gas - 152 152 We own and have in service approximately 6,300 miles of 2 1967 Gas - 372 372 transmission lines, approximately 24,000 miles of overhead Combustion Turbines 1 2000 Gas 68 - 68 2 2000 Gas 66 - 66 distribution lines and approximately 4,600 miles of underground 3 2001 Gas 150 - 150 distribution lines.

Hutchinson Energy Center: Substantially all of our utility properties are encumbered by first Hutchinson, Kansas priority mortgages pursuant to which bonds have been issued and Steam Turbine 4 1965 Gas 160 - 160 Combustion Turbines 1 1974 Gas 54 - 54 are outstanding.

2 1974 Gas 52 - 52 3 1974 Gas 55 - 55 ITEM 3. LEGAL PROCEEDINGS 4 1975 Diesel 71 - 71 Jeffrey Energy Center (92%): Information on legal proceedings is set forth in Notes 3, 13 and St. Marys, Kansas 15 of the Notes to Consolidated Financial Statements, "Rate Steam Turbines 1(bi 1978 Coal 517 144 661 Matters and Regulation,""Commitments and Contingencies" and 2 (b) 1980 Coal 515 143 658 3(b) 1983 Coal 520 144 664 "Legal Proceedings,"respectively, which are incorporated herein La Cygne Station (50%): by reference.

La Cygne, Kansas Steam Turbines 1 b) 1973 Coal - 368 368 ITEM 4. MINE SAFETY DISCLOSURES 2'Q 1977 Coal - 343 343 Lawrence Energy Center: Not Applicable.

Lawrence, Kansas Steam Turbines 3 1954 Coal 51 - 51 4 1960 Coal 109 - 109 5 1971 Coal 374 - 374 121

WESTAR ENERGY I 2012 ANNUAL REPORT PART II DIVIDENDS Holders of Westar Energy's common stock are entitled to dividends ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS when and as declared by Westar Energy's board of directors.

Quarterly dividends on common stock have historically been STOCK TRADING paid on or about the first business day of January, April, July and October to shareholders of record as of or about the ninth day of Westar Energy's common stock is listed on the New York Stock the preceding month. Westar Energy's board of directors reviews Exchange and traded under the ticker symbol WR. As of February 19, the common stock dividend policy from time to time. Among the 2013, Westar Energy had 20,347 common shareholders of record.

factors the board of directors considers in determining Westar For information regarding quarterly common stock price ranges Energy's dividend policy are earnings, cash flows, capitalization for 2012 and 2011, see Note 19 of the Notes to Consolidated ratios, regulation, competition and financial loan covenants. In Financial Statements, "Quarterly Results (Unaudited)."

2012, Westar Energy's board of directors declared four quarterly dividends of $0.33 per share, reflecting an annual dividend of STOCK PERFORMANCE GRAPH

$1.32 per share, compared to four quarterly dividends of $0.32 per The following graph compares the perfon-nance of Westar Energy's share in 2011, reflecting an annual dividend of $1.28 per share. On common stock during the period that began on December 31, February 28, 2013, Westar Energy's board of directors declared a 2007, and ended on December 31, 2012, to the performance of the quarterly dividend of $0.34 per share payable to shareholders on Standard & Poor's 500 Index (S&P 500) and the Standard & Poor's April 1, 2013.The indicated annual dividend rate is $1.36 per share.

Electric Utility Index (S&P Electric Utilities). The graph assumes a

$100 investment in Westar Energy's common stock and in each of UNREGISTERED SALES OF EQUITY SECURITIES the indices at the beginning of the period and a reinvestment of In addition to information included in our Form 10-Q filed on dividends paid on such investments throughout the period.

November 8, 2012, during the three-month period ended CUMULATIVE TOTAL RETURN December 31, 2012, Westar Energy entered into forward transac-Based upon an initial investment of $100 on December 31, 2007 tions pursuant to the forward sale agreement dated April 2, 2010, with dividends reinvested between Westar Energy and The Bank of New York Mellon

$200 (filed as Exhibit 10.1 to the Form 8-K filed on April 2, 2010) and the Sales Agency Financing Agreement with BNY Mellon Capital Markets, LLC and The Bank of New York Mellon (filed

$150 as Exhibit 1.3 to the Form S-3 filed on April 2, 2010), as amended on May 26, 2010 (filed as Exhibit 1(a) to the Form 10-Q filed on

$100 August 7, 2012), and May 9, 2012 (filed as Exhibit 1(b) to the

. %s -- -- Form 10-Q filed on May 9, 2012), in respect to an aggregate of approximately 0.4 million shares of Westar Energy common stock.

$50 In connection with the forward transactions, Westar Energy did not receive any proceeds from the sale of borrowed shares of its

$0 common stock by BNY Mellon Capital Markets, LLC. Westar Dec -07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Energy expects to receive proceeds from the sale of such shares, Westar Energy Inc. subject to certain adjustments, upon fuiture physical settlement(s)

- - - - S&P© Electric Utilities of the forward transactions pursuant to the terms of the forward

-- spo 500 sale agreement. If Westar Energy elects to cash settle or net share Dec-2007Dec-2008 Dec-2009 Dec.2010 Dec-2011Dec-2012 settle the forward transactions, it may not receive any proceeds (in Westar Energy Inc. . $100 $83 $94 $115 $138 $144 the case of cash settlement) or shares of its common stock (in the case of net share settlement) pursuant to the temnis of the forward S&P 50O0............ $100 $63 $80 $ 92 $ 94 $109 sale agreement.

S&POElectric Utilities ... $100 $74 $77 $ 79 $ 96 $ 95 The forward transactions were entered into pursuant to the terms of a letter dated October 6, 2003, submitted by Robert W. Reeder and Leslie N. Silverman to Paula Dubberly of the staff of the Securities and Exchange Commission (Staff), to which the Staff responded in an interpretive letter dated October 9, 2003. As required by such letter, the shares of Westar Energy common stock sold by BNY Mellon Capital markets, LLC to hedge the forward transaction were sold pursuant to an effective Westar Energy registration statement (registration No. 333-165889), which was filed on April 2, 2010.

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WESTAR ENERGY I 2012 ANNUAL REPORT ITEM 6. SELECTED FINANCIAL DATA Year Ended December 31, 2012 2011 2010 2009 2008 (InThousands)

Income Statement Data:

Total revenues ........................... ... ....... $..2,261,470 $2,170,991 $ 2,056,171 $1,858,231 $ 1,838,996 Net income ' ............................................... 282,462 236,180 208,624 141,330 178,140 Net income attributable to common stock ............................... 273,530 229,269 202,926 174,105 177,170 As of December 31, 2012 2011 2010 2009 2008 (InThousands)

Balance Sheet Data:

Total assets ................................ ........ $....

S 9,265,231 $ 8,682,851 $8,079,638 $7,525,483 $ 7,443,259 Long-term obligations"' ...................................... 3,124,831 2,818,030 2,808,560 2,610,315 2,465,968 Year Ended December 31, 2012 2011 2010 2009 2008 Common Stock Data:

11 .. .. .. .. . .. .. .. .. . ..

Basic earnings per share available for common stock' .. $ 2.15 $ 1.95 $ 1.81 $ 1.58 $ 1.69 Dividends declared per share ..................................... $ 1.32 $ 1.28 $ 1.24 $ 1.20 $ 1.16 Book value per share ...................................... .$ 22.89 $ 22.03 $ 21.25 $ 20.59 $ 20.18 Average equivalent common shares outstanding (in thousands)"'f).............. 126,712 116,891 111,629 109,648 103,958 "The2009 amnount represents income fiom continuing operations.

,,Includes long-term debt, nct, current maturities of long-tcrn debt, capital leases and,for 2010 through 2012, long-term debt of VIEs, net and current maturities of long-term debt ofVIEs. See Note 17 of the Notes to Consolidated FinancialStatements,"Variable Interest Entities,"ifor additional i11formnation regardingVIEs.

f" The earningsper share (EPS) amount previously reportedfor 2008 Iasadjusted to reflect the use of the two-class method beginning in 2009. See Note 2 of the Notes to ConsolidatedFinancialStatements, "Sunuani of Significant Accounting Policies-EarningsPer Share,"for additionalinformationregarding the tnwo-class method.

Additionally, we recorded basic EPS availablefor common stock firm continuing operationsof$1.28 in 2009.

11 1 1n 2008, Westar Energy issued and sold approxihnateh/ 12.8 million shares of common stock realizingproceeds of $293.6 million.

• "In 2010, Westar Energy issued and sold approximately 3.1 million shares of common stock realizingproceeds of.$54.7 million.

1PIn 2011, Westar Energy/issued and sold approximately 13.6 million shares of common stock realizingproceeds of $294.9 million.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS Net income attributable to common stock increased due primarily OF FINANCIAL CONDITION AND RESULTS to higher retail prices, reduced depreciation expense and our OF OPERATIONS having recorded an additional $17.4 nmllion in corporate-owned Certain matters discussed in Management's Discussion and life insurance (COLI) benefits. These items were offset partially by Analysis are "forward-looking statements." The Private Securities increases in some operating costs, as authorized in the April 2012 Litigation Reform Act of 1995 has established that these KCC order, and our having recorded a $7.2 nmillion gain on the sale statements qualify for safe harbors from liability. Forward-looking of a non-utility investment in 2011. Contributing to the higher statements may include words like we "believe;" anticipate;" operating costs was our having reversed $22.0 million of previously "target,"" expect,""estimate,"'intend"and words of si-nilar meaning. accrued liabilities in 2011 as a result of settling litigation. See the Forward-looking statements describe our future plans, objectives, discussion trader "- Operating Results" below for additional expectations or goals. information. In addition, basic EPS was impacted by our having had more average equivalent common shares outstanding in 2012 EXECUTIVE

SUMMARY

due primarily to the issuance of additional shares in the latter part of 2011 to settle forward sale transactions.

Description of Business Key Factors Affecting Our Performance We are the largest electric utility in Kansas. We produce, transmit and sell electricity at retail to approximately 690,000 customers in The principal business, economic and other factors that affect our Kansas under the regulation of the KCC. We also supply electric operations and financial performance include:

energy at wholesale to municipalities and electric cooperatives " weather conditions; in Kansas under the regulation of FERC. We have contracts for

• the economy; the sale, purchase or exchange of wholesale electricity with

• customer conservation efforts; other utilities.

• the performance, operation and maintenance of our electric generating facilities and networks; Earnings Per Share

• conditions in the fuel, wholesale electricity and energy markets; Following is a sunmmary of our net income and basic EPS for the

• rate and other regulations and costs of addressing public policy years ended December 31, 2012 and 2011. initiatives including environmental regulations; Year Ended December 31, 2012 2011 Change " the availability of and our access to liquidity and capital resources; (Dollars InThousands, Except Per Share Amounts) and Net income attributable to common stock .... $273,530 $229,269 $44,261

" capital market conditions.

Earnings per common share, basic .......... 2.15 1.95 0.20 123

WESTAR ENERGY I 2012 ANNUAL REPORT Strategy with rulemaking; however, based on our current and planned We expect to continue operating as a vertically integrated, environmental controls, if the regulations were to be reinstated or regulated, electric utility. We strive to optimize flexibility in our replaced, either in part or in whole, we do not believe the impact on planning and operations to be able to respond to uncertain and our operations and consolidated financial results would be material.

changing conditions. Significant elements of our strategy include Greenhouse Gases maintaining a flexible and diverse energy supply portfolio. In doing In March 2012, the EPA proposed an NSPS that would limit CO, so, we continue to make environmental upgrades to our coal-fired emissions for new and modified electric generating units. We are power plants, develop renewable generation, build and upgrade currently evaluating the proposal and believe it could impact our our electrical infrastructure, and develop systems and programs to future generation plans if it becomes a final rule. The EPA has help customers use energy more efficiently.

indicated that a final rule could be issued in 2013. The EPA is also Current Trends expected to propose a GHG NSPS for existing generating units. We Environmental Regulation cannot at this time deternine the impact of such a performance Enixronmental laws and regulations affecting our operations, standard on our operations and consolidated financial results, but which relate primarily to air quality, water quality, the use of water, we believe the costs to comply could be material.

and the handling, disposal and clean-up of hazardous and non- Under regulations known as the Tailoring Rule, the EPA is hazardous substances and wastes, continue to evolve and have regulating GHG emissions from certain stationary sources. The become more stringent and costly over time. We have incurred and regulations are being implemented pursuant to two federal Clean will continue to incur significant capital and other expenditures, Air Act programs which impose recordkeeping and monitoring and may potentially need to limit the use of some of our power requirements and also mandate the implementation of BACT plants, to comply with existing and new environmental laws and for projects that cause a significant increase in GHG emissions regulations. While certain of these costs are recoverable through (defined to be more than 75,000 tons or more per year or the ECRR and ultimately we expect all such costs to be reflected 100,000 tons or more per year, depending on various factors).

in the prices we are allowed to charge, we cannot assure that all The EPA has issued guidance on what BACT entails for the control such costs will be recovered or that they will be recovered in a of GHGs and individual states are now required to determine what timely manner. See Note 13 of the Notes to Consolidated Financial controls are required for facilities within their jurisdiction on a case-Statements, "Commitments and Contingencies, "for additional by-case basis. We cannot at this time determine the impact of these information regarding environmental laws and regulations. regulations on our operations and consolidated financial results, Air Emissions but we believe the costs to comply with the regulations could The operation of power plants results in emissions of mercury, acid be material.

gases and other air toxics. In 2011, the EPA published MATS for Regulation of Coal Combustion Byproducts power plants, which replaces the prior federal CAMR and requires In the course of operating our coal generation plants, we produce significant reductions in mercury, acid gases and other emissions.

CCBs, including fly ash, gypsum and bottom ash, which we must Companies impacted by the new standards will have up to three handle, recycle, process or dispose of. We recycle some of our ash years, or four years with approval from a state environmental production, principally by selling to the aggregate industry. In 2010, regulatory agency, and in certain limited circumstances up to the EPA proposed a rule to regulate CCBs, which we believe might five years, to comply. We have obtained approval from our state impair our ability to recycle ash or require additional CCB handling, environmental regulator, agency and expect to be compliant with processing and storage equipment, or both. The EPA is expected to the new standards within four years. We continue to evaluate the issue a final rule in 2014 or sooner. While we cannot at this time new standards and believe that our related inveshnent will be less estimate the impact and costs associated with fuiture regulations of than $16.0 million.

CCBs, we believe the impact on our operations and consolidated In mid 2011, the EPA finalized CSAPR requiring 28 states, including financial results could be material.

Kansas, Missouri and Oklahoma, to fLuther reduce power plant National Ambient Air Quality Standards emissions of SO. and NOx. Under CSAPR, reductions in annual SO. and NOx emissions were required to begin January 2012, Under the federal Clean Air Act, the EPA sets NAAQS for certain with further reductions required beginning January 2014. The EPA emissions considered harmful to public health and the environment, also published a final supplemental rule to CSAPR later in 2011 including PM, NOx, CO and SO., which result from fossil fuel requiring five states, including Missouri and Oklahoma, to make combustion. Areas meeting the NAAQS are designated attainment summertime reductions in NOx emissions beginning in May 2012. areas while those that do not meet the NAAQS are considered Although Kansas was included in the original proposed rule, the nonattainment areas. Each state must develop a plan to bring final supplemental rule instead called for the EPA to revisit Kansas' nonattainment areas into compliance with the NAAQS. NAAQS status once Kansas submitted an ozone state implementation must be reveiwed by EPA at five-year intervals. KDHE proposed plan. In August 2012, the U.S. Court of Appeals for the District to designate portions of the Kansas City area nonattainment for of Columbia Circuit vacated CSAPR and remanded the rule to the eight-hour ozone standard. The EPA has not acted on KDHE's the EPA to promulgate a replacement. In October 2012, the EPA proposed designation of the Kansas City area and it is uncertain filed a petition with the court requesting a rehearing before the full when, or if, such a designation might occur. The Wichita area also court. In January 2013, the court issued orders declining to rehear exceeded the eight-hour ozone standard and could be designated the case. We cannot at this time predict how the EPA may proceed nonattainment in the future potentially impacting our operations.

241

WESTAR ENERGY 1 2012 ANNUAL REPORT In December 2012, the EPA strengthened an existing NAAQS for anywhere in the world, may result in increased operating and PM. The EPA anticipates making initial attainment/nonattainment capital expenditures. We cannot estimate the cost associated with designations tinder this rule by the end of 2014. We are currently such increases, but they could be material to our operations and evaluating the rule, however, we cannot at this tine predict the consolidated financial results.

impact it may have on our operations or consolidated financial In January 2012, Wolf Creek experienced a loss of off-site power results, but it could be material.

that resulted in an unscheduled outage, with the plant returning to In 2010, the EPA strengthened the NAAQS for both NOx and normal operations in March 2012. The NRC increased its oversight SO_. We continue to communicate with our regulators regarding of Wolf Creek following the loss of off-site power. We expect future these standards and are currently evaluating what impact increases in operating costs due to increased NRC oversight and this could have on our operations. If we are required to install efforts to comply with new industry-wide regulations adopted by additional equipment to control emissions at our facilities, the the NRC in 2012. Future extended or unscheduled shutdowns of revised NAAQS could have a material impact on our operations Wolf Creek could cause us to purchase replacement power, rely and consolidated financial results. more heavily on our other generating Units and reduce amounts of power available for us to sell in the wholesale market.

The EPA is required to review the NAAQS for ozone in 2013 and is likely to propose a more stringent standard. Allowance for Funds Used During Construction Water Allowance for finds used during construction (AFUDC) represents the allowed cost of capital used to finance utility construction We discharge some of the water used in our operations. This water may contain substances deemed to be pollutants. The EPA activity. We compute AFUDC by applying a composite rate to qualified construction work in progress. We credit other income delayed its plans to propose revisions to the rules governing such (for equity funds) and interest expense (for borrowed funds) for discharges from coal-fired power plants to 2013 with final action on the amount of AFUDC capitalized as construction cost on the the proposed rules expected to occur in 2014. Although we cannot at this tine determine the timing or impact of any new regulations, accompanying consolidated statements of income as follows:

more stringent regulations could have a material impact on our Year Ended December 31, 2012 2011 2010 operations and consolidated financial results. (in Thousands)

Borrowed funds ....................... $ 10,399 $ 5,589 $ 4,295 In 2011, the EPA issued a proposed rule that would set stricter Equity funds .......................... 11,706 5,550 3,104 technology standards for cooling water intake structures at power plants over concerns about impacts to aquatic life. We are currently Total .............................. $ 22,105 $ 11,139 $ 7,399 evaluating the proposed nile as well as recent nationally-issued Average AFUDC Rates .................. 5.0% 3.6% 2.6%

information requests from the EPA. The EPA is expected to finalize the rule in 2013; however, because the rule has yet to be finalized, We expect AFUDC for both borrowed funds and equity funds we cannot predict the impact it may have on our operations or to fluctuate over the next several years as we execute our capital consolidated financial results, but it could be material. expenditure program.

Since Kansas is in a severe drought and water remains a critical Interest Expense resource to our business, as well as the State economy, we have We expect interest expense to increase over the next several years increased our attention to water quantity matters. We will continue as we issue new debt securities to fund our capital expenditure to refine our contingency plans should the drought persist. program. We believe this increase will be reflected in the prices we are permitted to charge customers, as cost of capital will be a Renewable Energy Standard component of future rate proceedings and is also recognized in Kansas law mandates that we maintain a minimum amount of some of the other rate adjustments we are permitted to make. In renewable energy sources.Through 2015, net renewable generation addition, short-term interest rates are extremely low by historical capacity must be 10% of the average peak demand for the three standards. We cannot predict to what extent these conditions prior years, subject to limited exceptions. This requirement will continue.

increases to 15% for years 2016 through 2019 and 20% for 2020 and thereafter. In 2012, we began purchasing tinder 20-year supply Outstanding Shares of Common Stock contracts the renewable energy produced from approximately We expect the number of outstanding shares of Westar Energy 370 MW of additional wind generation, which, together with common stock to increase over the next several years as we issue existing facilities, supply contracts and renewable energy credits, additional shares to fund our capital expenditure program. See will allow LIs to satisfy the net renewable generation requirement Note 16 of the Notes to Consolidated Financial Statements, through 2015 and contribute toward meeting the increased "Common and Preferred Stock, for additional information requirements beginning in 2016. If we are inable to meet future regarding our share issuances.

requirements, our operations and consolidated financial results Customer Growth and Usage could be adversely impacted.

Residential customer additions have slowed and electricity demand Regulation of Nuclear Generating Station is stable to slightly declining due principally to the effects of the Additional regulation of Wolf Creek resulting from NRC oversight economic downturn and energy efficiency measures. Absent an of the plant's performance or from changing regulations generally, economic recovery to conditions similar to those preceding the including those that could potentially result from natural disasters downturn, we believe such additions will continue to be significantly or any event that might occur at any nuclear power plant lower than historical levels. In addition, with the numerous energy 125

WESTAR ENERGY I 2012 ANNUAL REPORT efficiency policy initiatives promulgated through federal, state As of December 31, 2012, we had recorded regulatory assets and local governments, as well as industry, we believe customers currently subject to recovery in future prices of approximately will continue to adopt more energy efficiency and conservation $1.0 billion and regulatory liabilities of $323.2 million, as discussed measures which will suppress the rate of demand for electricity. in greater detail in Note 3 of the Notes to Consolidated Financial Statements, "Rate Matters and Regulation."

2013 Outlook In 2013, we expect to maintain our current business strategy and Pension and Post-retirement Benefit Plans regulatory approach. Subject to regulatory approvals, we anticipate Actuarial Assumptions price increases in the form of formulae that track changes in certain We and Wolf Creek calculate our pension benefit and post-of our costs. We plan to file an abbreviated rate review in April retirement medical benefit obligations and related costs using 2013 for recovery of capital costs associated with approximately actuarial concepts within the guidance provided by applicable GAAP.

$350.0 million of our share of the La Cygne environmental In accounting for our retirement plans and post-retirement upgrades. Assuming normal weather in line with the historical benefits, we make assumptions regarding the valuation of benefit average, we expect 2013 retail electricity sales to be about 1% higher obligations and the performance of plan assets. The reported costs than weather normalized 2012 sales driven primarily by increased of our pension plans are impacted by estimates regarding earnings industrial demand. on plan assets, contributions to the plan, discount rates used to In addition, we anticipate increased operating and maintenance detern-rine our projected benefit obligation and pension costs, expenses, including maintenance costs for our power plants, and and employee demographics including age, compensation levels higher selling, general and administrative expenses, some of which and employment periods. Changes in these assumptions result will be offset in revenues. We plan to contribute $46.0 million to the primarily in changes to regulatory assets, regulatory liabilities or the Westar Energy and Wolf Creek pension and post-retirement benefit amount of related pension and post-retirement benefit liabilities plans in 2013. To help fund our capital spending as provided under reflected on our consolidated balance sheets. Such changes may

"- Future Cash Requirements" below, we plan to issue long-term also require cash contributions.

debt in addition to utilizing short-term borrowings and we expect The following table shows the impact of a 0.5% change in our to issue common stock to settle forward sale transactions. pension plan discount rate, salary scale and rate of return on plan assets.

CRITICAL ACCOUNTING ESTIMATES Annual Our discussion and analysis of financial condition and results of Changein Changein Projected Projected operations are based on our consolidated financial statements, Change in Benefit Pension Actuarial Assumption Assumption Obligation1s) Costs",

which have been prepared in conformity with Generally Accepted (Dollars InThousands)

Accounting Principles (GAAP). Note 2 of the Notes to Consolidated Discount rate ................... 0.5% decrease $ 85,050 $ 8,067 Financial Statements, "Sunimary of Significant Accounting 0.5% increase (78,952) (7,806)

Policies," contains a summary of our significant accounting policies, Salary scale .................... 0.5% decrease (19,342) (3,754) many of which require the use of estimates and assumptions by 0.5% increase 19,704 3,870 management.The policies highlighted below have an impact on our Rate of return on plan assets ....... 0.5% decrease - 3,062 reported results that may be material due to the levels of judgment 0.5% increase - (3,063) and subjectivity necessary to account for uncertain matters or their (u"no'easesor decreases due to changes in actuarialassumptions result primarily susceptibility to change.

in changes to regulatory assets and liabilities.

Regulatory Accounting We currently apply accounting standards that recognize the The following table shows the inpact of a 0.5% change in the economic effects of rate regulation. Accordingly, we have recorded discount rate and rate of return on plan assets and a 1% change regulatory assets and liabilities when required by a regulatory order in the annual medical trend on our post-retirement benefit plans.

or based on regulatory precedent. Regulatory assets represent Annual incurred costs that have been deferred because they are probable Change in Change in Projected of future recovery in our prices. Regulatory liabilities represent Projected Post-Change in Benefit retirement probable future reductions in revenue or refunds to customers. Actuarial Assumption Assumption Obligation"' Costs(W*

The deferral of costs as regulatory assets is appropriate only (Dollars InThousands) when the future recovery of such costs is probable. In assessing Discount rate ................... 0.5% decrease $ 8,856 $ 367 0.5% increase (8,402) (385) probability, we consider such factors as specific regulatory orders, regulatory precedent and the current regulatory environment. Were Rate of return on plan assets ....... 0.5% decrease - 502 0.5% increase - (500) we to deem it no longer probable that we would recover such costs, we would record a charge against income in the amount of the Annual medical trend ............. 1.0% decrease (1,256) (149) 1.0% increase 1,360 160 related regulatory assets.

("Increases or decreases due to changes in actuarialassumptions result primarily in changes to regTlatoty assets and liabilities.

261

WESTAR ENERGY I 2012 ANNUAL REPORT Income Taxes Non-Legal Liability - Cost of Removal We use the asset and liability method of accounting for income We collect in our prices the costs to dispose of plant assets that do taxes. Under this method, we recognize deferred tax assets and not represent legal retirement obligations. As of December 31, 2012 liabilities for the future tax consequences attributable to temporary and 2011, we had $129.0 million and $82.3 million, respectively in differences between the financial statement carrying amounts and amounts collected, but not yet spent, for removal costs classified as the tax basis of existing assets and liabilities. We recognize the a regulatory liability.

future tax benefits to the extent that realization of such benefits is Contingencies and Litigation more likely than not. We amortize deferred investment tax credits over the lives of the related properties as required by tax laws and We are currently involved in certain legal proceedings and have estimated the probable cost for the resolution of these claims.These regulatory practices. We recognize production tax credits in the year that electricity is generated to the extent that realization of such estimates are based on an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible benefits is more likely than not.

that our future consolidated financial results could be materially We record deferred tax assets to carry forward into future periods affected by changes in our assumptions. See Notes 13 and 15 of the capital losses, operating losses and tax credits. However, when we Notes to Consolidated Financial Statements, "Commitments and believe based on available evidence that we do not, or will not, have Contingencies"and"Legal Proceedings,"for additional information.

sufficient future capital gains or taxable income in the appropriate taxing jurisdiction to realize the entire benefit during the applicable OPERATING RESULTS carryforward period, we record a valuation allowance against the We evaluate operating results based on EPS. We have various deferred tax asset.

classifications of revenues, defined as follows:

The application of income tax law is complex. Laws and regulations Retail: Sales of electricity to residential, commercial and in this area are voluminous and often ambiguous. Accordingly, we must make judgments regarding income tax exposure. industrial customers. Classification of customers as residen-Interpretations of and guidance surrounding income tax laws tial, commercial or industrial requires judgment and our classifications may be different from other companies.

and regulations change over time. As a result, changes in our Assignment of tariffs is not dependent on classification.

judgments can materially affect amounts we recognize in our consolidated financial statements. See Note 10 of the Notes to Other retail: Sales of electricity for lighting public streets and Consolidated Financial Statements,"Taxes," for additional detail on highways, net of revenue subject to refund.

our accounting for income taxes.

Wholesale: Sales of electricity to electric cooperatives, Asset Retirement Obligations municipalities and other electric utilities, the prices for Legal Liability which are either based on cost or prevailing market prices We have recognized legal obligations associated with the disposal as prescribed by FERC authority. Margins realized from sales of long-lived assets that result from the acquisition, construction, based on prevailing market prices generally serve to offset development or normal operation of such assets. Concurrent our retail prices and the prices charged to certain wholesale with the recognition of the liability, the estimated cost of the asset customers taking service under cost-based tariffs.

retirement obligation (ARO) is capitalized and depreciated over the Transmission: Reflects transmission revenues, including those remaining life of the asset. We estimate our AROs based on the fair based on tariffs with the SPP.

value of the AROs we incurred at the time the related long-lived assets were either acquired, placed in service or when regulations Other: Miscellaneous electric revenues including ancillary establishing the obligation became effective. service revenues and rent from electric property leased to others.

This category also includes energy marketing transactions We initially recorded AROs at fair value for the estimated cost unrelated to the production of our generating assets, changes to decommission Wolf Creek (our 47% share), retire our wind in valuations of related contracts and fees we earn for marketing generating facilities, dispose of asbestos insulating material at services that we provide for third parties.

our power plants, remediate ash disposal ponds and dispose of Electric utility revenues are impacted by things such as rate polychlorinated biphenyl contaminated oil. hi determining our regulation, fuel costs, technology, customer behavior, the economy AROs, we make assumptions regarding probable future disposal and competitive forces. Changing weather also affects the amount costs. A change in these assumptions could have a significant of electricity our customers use as electricity sales are seasonal. As a impact on the AROs reflected on our consolidated balance sheets.

summer peaking utility, the third quarter typically accoumts for our As of December 31, 2012 and 2011, we have recorded AROs of greatest electricity sales. Hot summer temperatures and cold winter

$152.6 million and $142.5 million, respectively. For additional temperatures prompt more demand, especially among residential information on our legal AROs, see Note 14 of the Notes to customers. Mild weather reduces customer demand. Our wholesale Consolidated Financial Statements, "Asset Retirement Obligations." revenues are impacted by, among other factors, demand, cost and availability of fuel and purchased power, price volatility, available generation capacity, transmission availability and weather.

127

WESTAR ENERGY 1 2012 ANNUAL REPORT 2012 Compared to 2011 of this order, we expect selling, general and administrative expense Below we discuss our operating results for the year ended to increase $32.1 million and the cost of operating and maintaining December 31, 2012, compared to the results for the year ended our distribution system to increase $10.9 million on an annualized December 31, 2011. Significant changes in results of operations basis. In addition, we revised our depreciation rates to reflect shown in the table immediately below are further explained in changes in the estimated useful lives of some of our assets. The the descriptions that follow. change in estimate will decrease annual depreciation expense by

$43.6 million. However, decreased depreciation expense as a result Year Ended December 31, 2012 2011 Change  % Change of lower depreciation rates will be offset by additions to property, (Dollars In Thousands, Except Per Share Amounts) plant and equipment. Because the aforementioned changes were REVENUES: implemented shortly after the KCC issued its order, our 2012 Residential ................ $ 714,562 $ 693,388 $ 21,174 3.1 Com mercial ............... 640,654 604,626 36,028 6.0 consolidated financial results do not reflect the full annual impact Ind ustrial . .. . . .. . .. . . .. . . . 368,909 347,881 21,028 6.0 of the changes.

Other retail ................ (5,845) (8,964) 3,119 34.8 Gross Margin Total Retail Revenues ....... 1,718,280 1,636,931 81,349 5.0 W holesale ................ 316,353 346,948 (30,595) (8.8)

Fuel and purchased power costs fluctuate with electricity sales and Transm ission" ............... 193,797 154,569 39,228 25.4 unit costs. As permitted by regulators, we adjust our retail prices Oth e r . . . . . . . . . . . . . . . . . . . . 33,040 32,543 497 1.5 to reflect changes in the costs of fuel and purchased power. Fuel Total Revenues ........... 2,261,470 2,170,991 90,479 4.2 and purchased power costs for wholesale customers are recovered at prevailing market prices or based on a predetermined formula OPERATING EXPENSES:

with a price adjustment approved by FERC. As a rescilt, changes Fuel and purchased power .... 589,990 630,793 (40,803) (6.5)

Operating and maintenance... 612,871 557,752 55,119 9.9 in fuel and purchased power costs are offset in revenues with Depreciation and amortization. 270,464 285,322 (14,858) (5.2) rninimal impact on net income. For this reason, we believe gross Selling, general and administrative 226,012 184,695 41,317 22.4 margin is useful for understanding and analyzing changes in our Total Operating Expenses ... 1,699,337 1,658,562 40,775 2.5 operating performance from one period to the next. We calculate gross margin as total revenues less the sum of fuel and purchased INCOME FROM OPERATIONS .... 562,133 512,429 49,704 9.7 power costs and SPP network transmission costs. Transmission OTHER INCOME (EXPENSE): costs reflect the costs of providing network transmission service.

Investment earnings ......... 7,411 9,301 (1,890) (20.3)

Accordingly, in calculating gross margin, we recognize the net value Other income .............. 35,378 8,652 26,726 308.9 Other expense ............. (19,987) (18,398) (1,589) (8.6) of this transmission activity as shown in the table immediately (b) foflowing. However, we record transmission costs as operating and Total Other Income (Expense) 22,802 (445) 23,247 maintenance expense on our consolidated statements of income.

Interest expense .............. 176,337 172,460 3,877 2.2 The following table summarizes our gross margin for the years INCOME BEFORE INCOME TAXES 408,598 339,524 69,074 20.3 ended December 31, 2012 and 2011.

Income tax expense ........... 126,136 103,344 22,792 22.1 Year Ended December 31, 2012 2011 Change %Change NET INCOM E ................ 282,462 236,180 46,282 19.6 (Dollars InThousands)

Less: Net income attributable to noncontrolling interests ...... 7,316 5,941 1,375 23.1 Revenues ................... $2,261,470 $2,170,991 $ 90,479 4.2 Less: Fuel and purchased NET INCOME ATTRIBUTABLE power expense ........ 589,990 630,793 (40,803) (6.5)

TO WESTAR ENERGY ........ 275,146 230,239 44,907 19.5 SPP network transmission Preferred dividends ........... 1,616 970 646 66.6 costs ............... 166,547 132,164 34,383 26.0 NET INCOME ATTRIBUTABLE Gross Margin ................ $1,504,933 $1,408,034 $ 96,899 6.9 TO COMMON STOCK ........ $ 273,530 $ 229,269 $ 44,261 19.3 BASIC EARNINGS PER The following table reflects changes in electricity sales for the years AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE ended December 31, 2012 and 2011. No electricity sales are shown TO WESTAR ENERGY ........ $ 2.15 $ 1.95 $ 0.20 10.3 for transmission or other as they are not directly related to the

'"'Reflects irzoense fi-on an SPP network trastnsission tahriff In 2012 and 2011, amount of electricity we sell.

our SPP network trausnsission costs were $166.5 inillion and $132.2 million, Year Ended December 31, 2012 2011 Change %Change respectively. These antounts, less adininishtation costs of $27.2 mnillion and (Thousands of MWh)

$18.6 million, were returned to us as mevenlc in (2012and 2011, respectively.

l'fChange Vreater than 1000%. ELECTRICITY SALES:

Residential ................ 6,684 6,986 (302) (4.3)

Commercial ............... 7,581 7,573 8 0.1 Rate Case Agreement Industrial ................. 5,588 5,589 (1) Wa In April 2012, the KCC issued an order authorizing higher revenues Other retail ................ 85 88 (3) (3.4) to recover higher expenses primnarily for increased tree trimming Total Retail .............. 19,938 20,236 (298) (1.5) to enhance reliability and increased pension costs resulting from W holesale ................ 7,719 8,215 (496) (6.0) the consequences of the 2008 financial crisis and subsequent Total ................... 27,657 28,451 (794) (2.8) low interest rate environment in accordance with the regulatory

,"Change less tHan 0.1%.

mechanism in place to account for such pension costs. As a result 281

WESTAR ENERGY I 2012 ANNUAL REPORT Gross margin increased due primarily to higher retail revenues Depreciation and amortization expense decreased as a result of that were the result of higher prices offset partially by lower retail our having reduced depreciation rates to reflect changes in the electricity sales. The lower retail electricity sales were attributable estimated useful lives of some of our assets. Partially offsetting this principally to moderate weather, which particularly impacted decrease was additional depreciation expense associated primarily residential electricity sales. In 2012, cooling degree days were similar with additions at our power plants, including air quality controls, to 2011; however, cooling degree days during the third quarter of and the addition of transmission facilities.

2012 were 9% lower than the same period of 2011. Year Ended December 31, 2012 2011 Change  % Change Income from operations is the most directly comparable measure (Dollars InThousands)

GAAP measure to our presentation of gross margin. Our Selling, general and administrative expense .................. $ 226,012 $ 184,695 $ 41,317 22.4 presentation of gross margin should not be considered in isolation or as a substitute for income from operations. Additionally, our Selling, general and administrative expense increased due presentation of gross margin may not be comparable to similarly primarily to:

titled measures reported by other companies. The following table reconciles income from operations with gross margin for the years " our having reversed $22.0 million of previously accrued liabilities ended December 31, 2012 and 2011. in 2011 as a result of settling litigation;

" higher pension and other employee benefit costs of $20.2 million; Year Ended December 31, 2012 2011 Change  % Change

" our having recorded $4.5 million of expense as a result of (Dollars InThousands) sustainable cost reduction activities; and Gross margin ................ $1,504,933 $1,408,034 $ 96,899 6.9 " a $2.1 million increase in the amortization of previously deferred Add: SPP network transmission amounts associated with various energy efficiency programs, costs ............... 166,547 132,164 34,383 26.0 Less: Operating and maintenance which we recover in retail revenues; however, expense ............. 612,871 557,752, 55,119 9.9 " partially offsetting these increases was a $9.4 million decrease Depreciation and amortization in legal fees that was the result principally of arbitration and expense ............. 270,464 285,322 (14,858) (5.2) litigation that occurred in 2011.

Selling, general and administrative expense ............. 226,012 184,695 41,317 22.4 Year Ended December 31, 2012 2011 Change %Change Income from operations ........ $ 562,133 $ 512,429 $ 49,704 9.7 (Donlars InThousands)

Investment earnings ........... $ 7,411 $ 9,301 $ (1,890) (20.3)

Operating Expenses and Other Income and Expense Items Investment earnings decreased due principally to:

" our having recorded a $7.2 million gain on the sale of a non-Year Ended December 31, 2012 2011 Change %Change utility investment in 2011; however, (Dollars InThousands) " partially offsetting these items was our having recorded Operating and maintenance $4.5 million of additional gains on investments in a trust to fund expense ................ $ 612,871 $ 557,752 $ 55,119 9.9 retirement benefits and a $1.7 million increase in our share of the earnings of the Prairie Wind Transmission, LLC.

Operating and tnaintenance expense increased due principally to:

Year Ended December 31, 2012 2011 Change  % Change

" higher SPP network transmission costs of $34.4 million, most of (Dollars In Thousands) which is offset with higher revenues;

" a $9.2 million increase in property taxes, most of which is offset Other income ................ $ 35,378 $ 8,652 $ 26,726 308.9 in retail revenues;

" higher costs for tree trimming and other electrical system Other income increased due principally to:

reliability activities of $5.9 million; and " our having recorded an additional $17.4 nmllion in COLI benefits;

" higher costs at Wolf Creek of $4.6 million, which were the result " a $6.2 niflion increase in equity AFUhDC, which reflects more primarily of maintenance costs incurred during an unscheduled construction activity; and outage. " our having recorded an additional $3.1 million related to the sale of oil inventory.

Year Ended December 31, 2012 2011 Change %Change (Dollars InThousands) Year Ended December 31, 2012 2011 Change  % Change Depreciation and amortization (Dollars In Thousands) expense .................. $ 270,464 $ 285,322 $ (14,858) (5.2) Income tax expense ........... $ 126,136 $ 103,344 $ 22,792 22.1 Income tax expense increased due principally to higher income before income taxes.

129

WESTAR ENERGY I 2012 ANNUAL REPORT 2011 Compared to 2010 Gross Margin Below we discuss our operating results for the year ended The following table summarizes our gross margin for the years December 31, 2011, compared to the results for the year ended ended December 31, 2011 and 2010.

December 31, 2010. Significant changes in results of operations Year Ended December 31, 2011 2010 Change %Change shown in the table immediately below are further explained in (Dollars InThousands) the descriptions that follow.

Revenues ................... $2,170,991 $2,056,171 $ 114,820 5.6 Year Ended December 31, 2011 2010 Change %Change Less: Fuel and purchased power (Dollars InThousands, Except Per Share Amounts) expense ............. 630,793 583,361 47,432 8.1 SPP network transmission REVENUES: costs ............... 132,164 116,449 15,715 13.5 Residential ................ $ 693,388 $ 661,177 $ 32,211 4.9 Com mercial ............... 604,626 572,062 32,564 5.7 Gross Margin ................ $1,408,034 $1,356,361 $ 51,673 3.8 Ind ustrial . .. . . .. . . . .. . .. . . 347,881 318,249 29,632 9.3 Other retail ................ (8,964) (12,703) 3,739 29.4 The following table reflects changes in electricity sales for the years Total Retail Revenues ....... 1,636,931 1,538,785 98,146 6.4 ended December 31, 2011 and 2010. No electricity sales are shown Wholesale ................ 346,948 334,669 12,279 3.7 for transmission or other as they are not directly related to the Transmission(, . . . . . . . . . . . 154,569 144,513 10,056 7.0 amount of electricity we sell.

Other . . .. . .. . . .. . . .. . . .. . 32,543 38,204 (5,661) (14.8)

Year Ended December 31, 2011 2010 Change %Change Total Revenues ........... 2,170,991 2,056,171 114,820 5.6 (Thousands in MWh)

OPERATING EXPENSES:

ELECTRICITY SALES:

Fuel and purchased power .... 630,793 583,361 47,432 8.1 Residential ................ 6,986 6,957 29 0.4 Operating and maintenance... 557,752 520,409 37,343 7.2 Commercial ............... 7,573 7,519 54 0.7 Depreciation and amortization. 285,322 271,937 13,385 4.9 Industrial ................. 5,589 5,468 121 2.2 Selling, general and administrative 184,695 207,607 (22,912) (11.0) Other retail ................ 88 89 (1) (1.1)

Total Operating Expenses... 1,658,562 1,583,314 75,248 4.8 Total Retail .............. 20,236 20,033 203 1.0 INCOME FROM OPERATIONS .... 512,429 472,857 39,572 8.4 W holesale ................ 8,215 8,712 (497) (5.7)

OTHER INCOME (EXPENSE): Total ................... 28,451 28,745 (294) (1.0)

Investment earnings ......... 9,301 7,026 2,275 32.4 Other incom e .............. 8,652 5,369 3,283 61.1 Gross margin increased due primarily to higher total retail Other expense ............. (18,398) (16,655) (1,743) (10.5) revenues, 84% of which was due to higher prices and 16% of Total Other Expense ....... (445) (4,260) 3,815 89.6 which was due to higher electricity sales. The increase in retail Interest expense .............. 172,460 174,941 (2,481) (1.4) electricitv sales was due principally to higher industrial electricity INCOME BEFORE INCOME TAXES 339,524 293,656 45,868 15.6 sales. We believe improving economic conditions are why some Income tax expense ........... 103,344 85,032 18,312 21.5 of our industrial customers experienced increased production, NET INCOM E................ 236,180 208,624 27,556 13.2 which resulted in more electricity sales to them. Residential and Less: Net income attributable to commercial electricity sales increased due primarily to the effects of noncontrolling interests ...... 5,941 4,728 1,213 25.7 warmer weather. As measured by cooling degree days, the weather NET INCOME ATTRIBUTABLE TO in 2011 was 7% wanner than in 2010.

WESTAR ENERGY ........... 230,239 203,896 26,343 12.9 Preferred dividends ........... 970 970 - The following table reconciles income from operations with gross margin for the years ended December 31, 2011 and 2010.

NET INCOME ATTRIBUTABLE TO COMMON STOCK .......... $ 229,269 $ 202,926 $ 26,343 13.0 Year Ended December 31, 2011 2010 Change %Change BASIC EARNINGS PER (Dollars InThousands)

AVERAGE COMMON SHARE Gross margin ................ $1,408,034 $1,356,361 $ 51,673 3.8 OUTSTANDING ATTRIBUTABLE Add: SPP network transmission TO WESTAR ENERGY ........ $ 1.95 $ 1.81 $ 0.14 7.7 costs ............... 132,164 116,449 15,715 13.5

ý"'Reflects revenue fiosn an SPP net-work transmission tsriff. In 2011 and 2010, Less: Operating and maintenance our SPP network htanssixssion costs tw'ere $132.2 msillion and $116.4 ssmillion, expense ............. 557,752 520,409 37,343 7.2 Depreciation and amortization respectively. The se amoounts, less admninistration costs of $18.6 mnillion and expense ............. 285,322 271,937 13,385 4.9

$14.4 million, respective ly,were rtsturved to us as revenue.

• Cannot divide bsyzero. Selling, general and administrative expense 184,695 207,607 (22,912) (11.0)

Income from operations ........ $ 512,429 $ 472,857 $ 39,572 8.4 301

WESTAR ENERGY I 2012 ANNUAL REPORT Operating Expenses and Other Income Year Ended December 31, 2011 2010 Change %Change and Expense Items (Dollars InThousands)

Year Ended December 31, 2011 2010 Change %Change Investment earnings ........... $ 9,301 $ 7,026 $ 2,275 32.4 (Dollars InThousands)

Operating and maintenance expense .................. $ 557,752 $ 520,409 $ 37,343 7.2 Investment earnings increased due principally to our having recorded a $7.2 million gain on the sale of a non-utility investment.

Operating and maintenance expense increased due principally to: This increase was offset partially by our having recorded lower gains on investments held in a trust to ftmd retirement benefits.

" higher SPP network transmission costs of $15.7 million, most of We recorded gains on these investments of $0.8 million in 2011 which is recovered in revenues; compared to gains of $4.8 million recorded in 2010.

" higher costs at Woff Creek of $13.0 million, which was the result primarily of an increase in the amortization of deferred refueling Year Ended December 31, 2011 2010 Change %Change and maintenance outage costs of $8.0 million and higher (Dollars InThousands) regulatory compliance costs; Other income ................ $ 8,652 $ 5,369 $ 3,283 61.1

" a $7.0 million increase in property taxes, which was mostly offset in retail revenues; Other income increased due principally to:

" our having recorded in 2010 a $5.0 million reduction in our " a $2.4 million increase in equity AFUDC, which reflects increased liability for environmental remediation costs associated with construction activity; and assets we divested many years ago; " our having recorded gains on the sale of oil of $1.2 million, for

" a $2.3 million increase related to the operation of our steam which sinmilar gains were not recorded in 2010.

powered plants; and Year Ended December 31, 2011 2010 Change %Change

" higher costs for tree trimming and other distribution reliability (Dollars InThousands) activities of $1.4 million; however, Income tax expense ........... $ 103,344 $ 85,032 $ 18,312 21.5

" partially offsetting these increases was an $8.0 million decrease in the amortization of previously deferred storm costs.

Income tax expense increased due principally to higher income Year Ended December 31, 2011 2010 Change  % Change before income taxes.

(Dollars InThousands)

Depreciation and amortization Financial Condition expense .................. $ 285,322 $ 271,937 $ 13,385 4.9 A number of factors affected amounts recorded on our balance sheet as of December 31, 2012, compared to December 31, 2011.

Depreciation and amortization expense increased as a result of As of December 31, 2012 2011 Change %Change our having recorded additional depreciation expense associated (Dollars InThousands) primarily with the addition of transmission facilities and additions Fuel inventory and supplies ..... $ 249,016 $ 229,118 $ 19,898 8.7 at our power plants, including air quality controls.

Year Ended December 31, 2011 2010 Change %Change Fuel inventory and supplies increased due principally to an (Dollars InThousands) $11.6 million increase in supplies inventory and a $10.3 million Selling, general and administrative increase in coal inventory. Supplies inventory increased due expense .................. $ 184,695 $ 207,607 $ (22,912) (11.0) principally to Wolf Creek's preparation for the 2013 refueling and maintenance outage and as we construct environmental upgrades Selling, general and administrative expense decreased due at Jeffrey Energy Center. As of December 31, 2011, coal volumes primarily to: were lower due primarily to fewer coal deliveries as a result of

" the reversal of approximately $22.0 million of previously flooding in 2011. Coal inventories returned to more normal levels accrued liabilities as a result of the legal settlements discussed by December 31, 2012.

in Note 15 of the Notes to Consolidated Financial Statements, Asof December 31, 2012 2011 Change %Change "Legal Proceedings"; and (Dollars InThousands)

" otur having recorded $71 million less for non-union, non-Property, plant and executive employee compensation that is at-risk to employees equipment, net ............. $7,013,765 $6,411,922 $ 601,843 9.4 and payable only upon meeting pre-established operating and financial objectives. Property, plant and equipment, net of accumulated depreciation, Partially offsetting the aforementioned decreases was: increased due primarily to our installation of air quality controls at our power plants and expanding our transmission systems.

" a $3.6 million increase in the amortization of previously deferred As of December 31, 2012 2011 Change %Change amounts associated with various energy efficiency programs, (Dollars InThousands) which we recover in higher retail revenues; and Regulatory assets ............. $1,002,672 $1,046,090 $ (43,418) (4.2)

• higher legal fees of $3.2 million related principally to the legal Regulatory liabilities ........... 323,175 271,387 51,788 19.1 matters discussed in Note 15 of the Notes to Consolidated Net regulatory assets ........ $ 679,497 $ 774,703 $ (95,206) (12.3)

Financial Statements, "Legal Proceedings.'

131

WESTAR ENERGY I 2012 ANNUAL REPORT Total regulatory assets decreased due primarily to the following LIQUIDITY AND CAPITAL RESOURCES reasons: Overview

" an $18.7 million decrease in deferred employee benefit costs; Available sources of funds to operate our business include

" a $15.3 million decrease in amounts previously deferred for fuel internally generated cash, short-term borrowings under Westar ex-pense; Energy's commercial paper program and revolving credit facilities,

" a $14.7 million decrease in previously deferred storm costs; and and access to capital markets. We expect to meet our day-to-

" a $10.9 million decrease in amounts deferred for the 2011 Wolf day cash requirements including, among other items, fuel and Creek outage; however, purchased power, dividends, interest payments, income taxes and

" partially offsetting decreases was a $15.2 million increase in pension contributions, using primarily internally generated cash amounts deferred for property taxes. and short-term borrowings. To meet the cash reqtuirements for our capital investments, we expect to use internally generated cash, Regulatory liabilities increased due principally to a $46.6 million short-term borrowings, and proceeds from the issuance of debt increase in amounts collected but not yet spent to dispose of plant and equity securities in the capital markets. We also use proceeds assets.

fromt the issuance of securities to repay short-tern borrowixngs, As of December 31, 2012 2011 Change  % Change which are principally related to investments in capital equipment

.Dollars In Thousands) and the redemption of bonds, when such balances are of Short-term debt .............. $ 339,200 $ 286,300 $ 52,900 18.5 sufficient size and it makes economic sense to do so, and for working capital and general corporate purposes. For additional Short-term debt increased due principally to increased issuances of infortnation on our future cash requirements, see"- Future Cash commercial paper. We used proceeds from issuances of short-term Requirements"below.

debt securities to fund our capital and ongoing operating needs on In 2013, we expect to continue our significant capital spending an interim basis.

program and plan to contribute to our pension trust. We continue to As of December 31, 2012 2011 Change  % Change believe that we will have the ability to pay dividends. Uncertainties (Dollars In Thousands) affecting our ability to meet cash requirements include, amnong Long-term debt, net ........... $2,819,271 $2,491,109 $ 328,162 13.2 others, factors affecting revenues described in"-Operating Results" above, economic conditions, regulatory actions, compliance with Long-term debt, net increased due principally to the issuance of environmental regulations and conditions in the capital markets.

$550.0 million principal amount of first mortgage bonds. Partially Capital Structure offsetting this increase was the redemption of $220.5 million of bonds as discussed in Note 9 of the Notes to Consolidated Financial As of December 31, 2012 and 2011, our capital structure, excluding Statements,"Long-term Debt." short-term debt, was as follows:

As of December 31, 2012 2011 As of December 31, 2012 2011 Change  % Change (Dollars In Thousands) Com mon equity .................................... 49% 50%

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

Deferred income tax liabilities ... $1,197,837 $1,110,463 $ 87,374 7.9 Noncontrolling interests .............................. <1% <1%

Long-term debt, including VIEs ........................ 51% 50%

Deferred income tax liabilities increased due primarily to our having recorded $157.5 million of tax benefits resulting from the use of Short-Term Borrowings bonus and accelerated depreciation methods. This was partially In 2011 Westar Energy entered into a commercial paper program offset by a state tax credit carryforvard benefit of $30.3 million and pursuant to which it may issue commercial paper up to a maximum the tax effect of a deferred net operating loss of $27.5 million. aggregate amount outstanding at any one time of $1.0 billion.This As of December 31, 2012 2011 Change %Change progranm is supported by Westar Energy's revolving credit facilities (Dollars InThousands) described below. Maturities of commercial paper issuances may not Unarnortized investment tax exceed 365 days from the date of issuance and proceeds from such credits ................... $ 191,512 $ 164,175 $ 27,337 16.7 issuances will be used to temporarily fttnd capital expenditures, to repay borrowings under Westar Energy's revolving credit facilities, Unatnortized investment tax credits increased due primarily to for working capital and/or for other general corporate purposes. As recording state investment tax credits of $30.3 million in 2012. of February 19, 2013, Westar Energy had issued $359.7 million of As of December 31, 2012 2011 Change %Change commercial paper.

(Dollars InThousands) Westar Energy has two revolving credit facfilties in the amounts of Accrued employee benefits ..... $ 564,870 $ 592,617 $ (27,747) (4.7) $730.0 nmillion and $270.0 million, which terminate in September 2016 and February 2016, respectively. As long as there is no default Accrued employee benefits decreased due primarily to our having utnder the facilities, they may be extended up to an additional two contributed $56.7 million to the Westar Energy pension trust, years and one year, respectively, and the aggregate amount of our having funded $13.9 million of Wolf Creek's pension plan borrowings uinder the facilities may be increased to $1.0 billion contributions, and our having contributed $10.8 million to Westar and $400.0 million, respectively, subject to lender participation. All Energys post-retirement benefit plan and all plans having had borrowings uinder the facilities are secured by KGE first mortgage favorable returns on assets. Actuarial losses on all plans partially bonds. Total combined borrowings under the revolving credit offset decreases.

321

WESTAR ENERGY I 2012 ANNUAL REPORT facilities and the commercial paper program may not exceed issuance. As of December 31, 2012, approximately $830.0 million

$1.0 billion at any given time. As of February 19, 2013, no amounts principal amount of additional first mortgage bonds could be were borrowed and $15.4 n-million of letters of credit had been issued issued under the most restrictive provisions in the mortgage, except under the $730.0 million facility. No amounts were borrowed and in connection with certain refundings.

no letters of credit were issued under the $270.0 million facility as Under the KGE mortgage, the issuance of bonds is subject to of the same date.

limitations based on the amount of bondable property additions.

A default by Westar Energy or KGE under other indebtedniess In addition, the mortgage prohibits additional first mortgage totaling more than $25.0 million would be a default under both bonds from being issued, except in connection with certain revolving credit facilities. Westar Energy is required to maintain a refundings, unless KGE's net earnings before income taxes and consolidated indebtedness to consolidated capitalization ratio of before provision for retirement and depreciation of property for a 65% or less at all times. At December 31, 2012, our ratio was 53%. period of 12 consecutive months within 15 months preceding the See Note 8 of the Notes to Consolidated Financial Statements, issuance are not less than either two and one-half times the annual "Short-Term Debt," for additional information regarding our interest charges on or 10% of the principal amount of all KGE first short-term borrowings. mortgage bonds outstanding after giving effect to the proposed issuance. As of December 31, 2012, approximately $870.0 million Debt Financing principal amount of additional KGE first mortgage bonds could be In May' 2012, Westar Energy issued $300.0 million principal amount issued under the most restrictive provisions in the mortgage.

of first mortgage bonds at a discount yielding 4.157%, bearing stated interest at 4.125% and maturing in March 2042.These bonds Some of our debt instnrments contain restrictions that require tIs constitute a further issuance of a series of bonds initially issued in to maintain leverage ratios as defined in the credit agreements.

March 2012 in the principal amount of $250.0 million, at a discount We calculate these ratios in -accordance with the agreements and yielding 4.13%, bearing stated interest at 4.125% and maturing in they are used to determine compliance with our various debt March 2041 Proceeds from these issuances of $541.4 million were covenants. We were in compliance with these covenants as of used to repay short-term debt, which was used to purchase capital December 31, 2012.

equipment, to redeem bonds, and for working capital and general Impact of Credit Ratings on Debt Financing corporate purposes.

Moody's Investors Service (Moody's), Standard & Poor's Ratings In May 2012, Westar Energy redeemed $150.0 nmillion aggregate Services (S&P) and Fitch Ratings (Fitch) are independent credit-principal amount of 6.10% first mortgage bonds. Additionally, rating agencies that rate our debt securities. These ratings indicate in March 2012 Westar Energy redeemed $57.2 million aggregate each agencys assessment of our ability to pay interest and principal principal amount of 5.00% pollution control bonds and KGE when due on our sectuities.

redeemed $13.3 million aggregate principal amount of 5.10%

In general, more favorable credit ratings increase borrowing pollution control bonds. The bonds were redeemed using short-opportunities and reduce the cost of borrowing. Under Westar term debt.

Energy's revolving credit facilities and commercial paper program, As of December 31, 2012, we had $121.9 million of variable rate, our cost of borrowings is determined in part by credit ratings.

tax-exempt bonds. While the interest rates for these bonds have However, Westar Energy's ability to borrow tinder the credit been extremely low, we continue to monitor the credit markets and facilities and commercial paper program are not conditioned on evaluate our options with respect to these bonds. maintaining a particular credit rating. We may enter into new credit agreements that contain credit rating conditions, which cotild affect The Westar Energy and KGE mortgages each contain provisions our liquidity and/or our borrowing costs.

restricting the amount of first mortgage bonds that can be issued by each entity. We must comply with such restrictions prior to Factors that impact our credit ratings include a combination of the issuance of additional first mortgage bonds or other secured objective and subjective criteria. Objective criteria include typical indebtechdess. financial ratios, such as total debt to total capitalization and funds from operations to total debt, among others, future capital Under the Westar Energy mortgage, the issuance of bonds is expenditures and our access to liquidity including committed lines subject to limitations based on the amount of bondable property of credit. Subjective criteria include such items as the quality and additions. In addition, so long as any bonds issued prior to credibility of management, the political and regulatory environment January 1, 1997, remain outstanding, the mortgage prohibits we operate in and an assessment of our governance and risk additional first mortgage bonds from being issued, except in management practices.

connection with certain refundings, unless Westar Energy's unconsolidated net earnings available for interest, depreciation and In January 2012, Moody's Investors Service (Moody's) upgraded property retirement (which as defined, does not include earnings its credit ratings for Westar Energy and KGE first mortgage bonds/

or losses attributable to the ownership of securities of subsidiaries), senior secured debt to A3 from Baal. Moody's also upgraded for a period of 12 consecutive months within 15 months preceding its credit rating for Westar Energy unsecured debt to Baa2 from the issuance, are not less than the greater of twice the annual Baa3 and assigned a P-2 rating to Westar Energy's commercial interest charges on or 10% of the principal amount of all first paper program.

mortgage bonds outstanding after giving effect to the proposed 133

WESTAR ENERGY I 2012 ANNUAL REPORT In February 2013, S&P revised its criteria for rating utility first with respect to an aggregate of approximately 1.8 million shares mortgage bonds. As a result S&P upgraded its credit ratings for of common stock. Assuming physical share settlement of these Westar Energy and KGE first mortgage bonds/senior secured debt forward sale transactions as of December 31, 2012, Westar to A- from BBB+. Energy would have received aggregate proceeds of approximately

$48.1 million based on a forward price of $2745 per share.

As of February 19,2013, our ratings with the agencies are as shown Furthermore, Westar Energy entered into an additional forward in the table below.

sale transaction in January 2013 with respect to an aggregate of Westar Energy KGEFirst Westar Energy approximately 0.3 million shares.

First Mortgage Mortgage Commercial Rating Bond Rating Bond Rating Paper Outlook In November 2010, Westar Energy entered into a separate forward Moody's ................ A3 A3 P-2 Stable sale agreement with a bank. Under the terms of the agreement, S&P ................... A- A- A-2 Stable Fitch .................. A- A- F2 Stable the bank, as forward seller, borrowed 7.5 mrilion shares of Westar Energy's common stock from third parties and sold them to a group Certain of our derivative instruments contain collateral provisions of underwriters for $25.54 per share. Under an over-allotment subject to certain of our debt ratings. If such debt ratings were to option included in the agreement, the underwriters purchased decrease or fall below investment grade, the counterparties to the approximately 1.0 nmllion additional shares for $25.54 per share, derivative instruments, pursuant to the provisions, could require increasing the total number of shares under the forward sale agreement to approximately 8.5 million shares. The underwriters collateralization on derivative instruments. The aggregate fair received a commission equal to 3.5% of the sales price of all shares value of all derivative instruments with objective credit-risk-sold under the agreement. In November 2011, Westar Energy related contingent features that were in a liability position as of delivered approximately 8.5 nmilion shares of conmmon stock for December 31, 2012 and 2011, was $0.8 million and $3.1 million, proceeds of approximately $197.3 million as complete settlement of respectively, for which we had posted no collateral, including this forward sale agreement.

independent amounts, as of either date. If all credit-risk-related contingent features underlying these agreements had been Westar Energy used the proceeds from the issuance of common triggered as of December 31, 2012 and 2011, we would have stock to repay short-term borrowings, with such borrowed amounts been required to provide to our counterparties $0.1 million and principally related to investments in capital equipment, as well as

$0.5 million, respectively, of additional collateral after taking into for working capital and general corporate purposes.

consideration the offsetting impact of derivative assets and net Preferred Stock Redemption accounts receivable.

In May 2012, Westar Energy provided an irrevocable notice of Common and Preferred Stock redemption to holders of all of Westar Energy's preferred shares.

Common Stock Pursuant to Westar Energy's Articles of Incorporation, we deposited Westar Energy's Restated Articles of Incorporation, as amended, cash in a separate account to effect the redemption of all of our provide for 275.0 million authorized shares of common stock. As of preferred stock outstanding. Payment was due to holders of the December 31, 2012, Westar Energy had 126.5 million shares issued preferred shares effective July 1, 2012. The table below shows the and outstanding. redemption amounts for all series of preferred stock.

Principal Call Total Cost In April 2010, Westar Energy entered into a three-year Sales Rate Shares Outstanding Price Premium to Reedem Agency Financing Agreement and forward sale agreement with (Dollars InThousands) a bank. The maximum amount that Westar Energy may offer 4.50% 121,613 $ 12,161 108.0% $ 973 $ 13,134 and sell under the agreements is the lesser of an aggregate ot 4.25% 54,970 5,497 101.5% 82 5,579

$500.0 million or approximately 22.0 million shares, subject to 5.00% 37,780 3,778 102.0% 76 3,854 adjustment for share splits, share combinations and share dividends. 214,363 $ 21,436 $ 1,131 $ 22,567 Under the terms of the Sales Agency Financing Agreement, Westar Energy may offer and sell shares of its common stock from time Summary of Cash Flows to time through the broker dealer subsidiary, as agent. The broker Year Ended December 31, 2012 2011 2010 dealer receives a commission equal to 1% of the sales price of all (InThousands) shares sold under the agreement. In addition, under the terms of the Cash flows from (used in):

Sales Agency Financing Agreement and forward sale agreement, Operating activities ..................... $599,106 $462,696 $ 607,702 Westar Energy may from time to time enter into one or more Investing activities ...................... (797,337) (701,516) (556,045) forward sale transactions with the bank, as forward purchaser, and Financing activities ..................... 200,521 241,431 (54,589) the bank will borrow shares of Westar Energy's common stock from Net increase (decrease) in cash third parties and sell them through its broker dealer. Westar Energy and cash equivalents ................ $ 2,290 $ 2,611 $ (2,932) must settle the forward sale transactions within 18 months of the date each transaction is entered. In 2011 and 2010, Westar Energy Cash Flows from Operating Activities entered into and settled forward sale transactions with respect Cash flows from operating activities increased $136.4 milion in 2012 to an aggregate of approximately 5.4 million shares of common compared to 2011 due principally to our having paid approximately stock for proceeds of approximately $118.3 million. During 2012, $100.9 million less for fuel and purchased power, our having Westar Energy entered into additional forward sale transactions received about $96.3 million more from retail customers and our 341

WESTAR ENERGY I 2012 ANNUAL REPORT having paid $56.3 million ini 2011 to settle litigation. Increases were used borrowings under the revolving credit facility to fund our offset partially by our having received approximately $42.0 million capital and ongoing operating needs while the proceeds from the less from wholesale customers, our having paid $29.7 million in issuance of common stock were used to repay such borrowings as 2012 to settle treasury yield hedge transactions, our having received well as for working capital and general corporate purposes. Partially

$13.1 million less in income tax refunds and our having contributed offsetting the aforementioned increases was our having paid

$10.3 million more to pension and post-retirement benefit plans. $9.1 million more in dividends during 2011, which was attributable to our having increased our common stock dividend from $1.24 The $145.0 million decrease in 2011 compared to 2010 was due per share in 2010 to $1.28 per share in 2011 as well as an increase primarily to our having paid $49.8 million more for purchases in common shares outstanding in 2011 due principally to the of coal and natural gas for our power plants, $34.2 million more settlement of forward sale transactions as discussed above.

for the planned Wolf Creek refueling and maintenance outage,

$32.2 million more for pension and post-retirement benefit plan Future Cash Requirements contributions, our having received $17.5 million less in income tax Our business requires significant capital investments. Through refunds in 2011 and our having paid more for maintenance on our 2015, we expect to need cash primarily for utility construction power plants and distribution system. In 2011, we also paid former programs designed to improve and expand facilities related to executive officers approximately $479 million in compensation and providing electric service, which include, but are not limited to, paid approximately $8.4 million for their legal fees and expenses ex'penditures for environmental projects at our coal-fired power as discussed in Note 15 of the Notes to Consolidated Financial plants, new transmission lines and other improvements to our Statements," Legal Proceedings:' Partially offsetting these decreases power plants, transmission and distribution lines, and equipment.

was our having received approximately $88.7 million more in We expect to meet these cash needs with internally generated customer receipts. cash, short-term borrowings and the issuance of securities in the capital markets.

Cash Flows used in Investing Activities Cash flows used in investing activities increased $95.8 million from We have incurred and expect to continue to incur significant 2011 to 2012 and $145.5 million from 2010 to 2011 due primarily to costs to comply with existing and future environmental laws and our having invested an additional $112.8 nmlion and $157.4 nmilion, regulations, which are subject to changing interpretations and respectively, in additions to property, plant and equipment, which amendments. Changes to environmental regulations could result in was attributable principally to additions at our power plants, significantly more stringent laws and regulations or interpretations including air quality controls, and the addition of transmission thereof that could affect us and our industry in particular. These facilities. Partially offsetting the increased investment in 2012 laws, regulations and interpretations could result in more stringent was our having received $32.2 million more in proceeds from our terms in our existing operating pemaits or a failure to obtain new investment in COLI. pemiits could cause a material increase in our capital or operational costs and could otherwise have a material effect on our operations Cash Flows from (used in) Financing Activities and consolidated financial results.

Cash flows from financing activities decreased $40.9 million in 2012 compared to 2011 due primarily to our having received Capital expenditures for 2012 and anticipated capital expenditures,

$287.9 million less in proceeds from the issuance of common stock, including costs of removal, for 2013 through 2015 are shown in the which was attributable principally to our having issued shares in following table.

2011 to settle forward sale transactions, and our having retired Actual 2012 2013 2014 2015

$220.2 million more of long-term debt due to favorable conditions (InThousands) in the capital markets. Contributing to the decrease was our having repaid $31.4 nmilion more for borrowings against the cash surrender Generation:

Replacements and other ..... $ 146,518 $199,600 $174,100 $169,000 value of COLI, our having established a $22.6 million restricted cash Environmental ............ 354,857 311,200 239,500 92,600 account to fund the redemption of preferred stock and our having Nuclear fuel ................ 29,582 7,200 52,800 29,100 Transmission' .............. 140,236 207,500 167,100 186,000 paid $19.9 million more for dividends as a result principally of our Distribution ................ 103,466 134,000 128,300 145,200 having increased our common stock dividend from $1.28 per share Other ..................... 35,550 28,600 23,500 20,400 in 2011 to $1.32 per share in 2012. Partially offsetting the decreases Total capital expenditures. $810,209 $888,100 $785,300 $ 642,300 was our having received $541.4 million in proceeds from long-term debt issuances. The proceeds were used to repay short-term debt, I"naddition to amounts listed, woeare investing in PrairieWind Transinssion.

which was used to purchase capital equipment, to redeem bonds, In 2012, woeincurred$8.3 mnillion of/exenditures related to this investment. In and for working capital and general corporate purposes. 2013, 2014 and 2015, we plan to incur expenditures related to Prairie Wind Transmnissionof$4.3 million, $17.9 mmillion and $0.1 nmillion, respectivelry.

The $296.0 million increase in 2011 compared to 2010 was due principally to our having received $240.3 million more in We prepare these estimates for planning purposes and revise them proceeds from the issuance of common stock as a result primarily from tihne to time.Actual expenditures will differ, perhaps materially, of the settlement of forward sale transactions during 2011. Also from our estimates due to changing regulatory requirements, contributing to the increase was our having borrowed $54.1 million changing costs, delays or advances in engineering, construction or under a revolving credit facility in 2011 compared to our having permitting, changes in the availability and cost of capital, and other repaid $16.1 million of borrowings Under the facility in 2010. We factors discussed in"Item 1A. Risk Factors.'We and our generating 135

WESTAR ENERGY I 2012 ANNUAL REPORT plant co-ow.ners periodically evaluate these estimates and this may CONTRACTUAL OBLIGATIONS AND COMMERCIAL result in frequent and possibly material changes in actual costs. In COMMITMENTS addition, these amounts do not include any estimates for potential In the course of our business activities, we enter into a variety of new environmental requirements. contracts and commercial commitments. Some of these result in We will also need significant amounts of cash in the future to meet direct obligations reflected on our consolidated balance sheets our long-term debt obligations. The principal amounts of our long- while others are commitments, some firm and some based on tenn debt maturities as of December 31, 2012, are as follows. uncertainties, not reflected in our underlying consolidated financial statements.

Long-term Long-term Year Debt Debt of VIEs Contractual Cash Obligations (InThousands)

The following table summarizes the projected future cash paytnents 20 13 ........................................ $ - $ 2 5,942 2014 ............................. . . .. 250,000 27,479 for our contractual obligations existing as of December 31, 2012.

20 15 ............................... . ... . - 27,933 Total 2013 2014-2015 2016-2017 Thereafter 20 16 ........................................ - 28,309 2017 ........................................ 125,000 26,842 (InThousands)

Thereafter ........................... .. 2,449,440 111,119 Long-term debt.... $2,824,440 $ - $250,000 $125,000 $2,449,440 11 Long-term debt of VIEs' 247,624 25,942 55,412 55,151 111,119 Total maturities ......... .......... . .. $ 2,824,440 $ 247,624 Interest on long-term debt") ........... 2,312,081 158,069 301,138 282,919 1,569,955 Pension Obligation Interest on long-term debt of VIEs ...... 64,100 13,891 22,614 15,776 11,819 The amount we contribute to our pension plan for future periods is not yet known, however, we expect to fund our pension plan Long-term debt, including interest 5,448,245 197,902 629,164 478,846 4,142,333 each year at least to a level equal to current year pension expense.

Pension and We must also meet minimum funding requirements under the post-retirement Employee Retirement Income Security Act, as amended by the benefit expected Pension Protection Act. We may contribute additional amounts contributions" .... . 46,000 46,000 - - -

from time to time as deemed appropriate. Capital leasesd) ..... 105,336 6,538 12,203 9,795 76,800 Operating leases"' ... 70,278 14,453 22,692 15,084 18,049 We contributed $56.7 million to our pension trust in 2012 and Other obligations

$50.0 million in 2011. We expect to contribute approximately of VIEs" .......... 17,403 2,423 2,114 8,310 4,556 Fossil fuelii) ........ 777,195 235,935 161,409 136,239 243,612

$30.0 million in 2013. In 2012 and 2011, we also funded Nuclear fuel," ....... 281,232 6,034 57,100 61,463 156,635

$13.9 million and $10.0 million, respectively, of Wolf Creek's Transmission service"i'. 34,275 6,039 12,045 6,348 9,843 pension plan contributions. In 2013, we expect to fuind $9.4 million Unconditional purchase obligations ...... 278,117 159,546 101,844 16,727 -

of Wolf Creek's pension plan contributions. See Notes 11 and 12 of the Notes to Consolidated Financial Statements, "Employee Total contractual Benefit Plans" and "Wolf Creek Employee Benefit Plans," for obligations"' .... $7,058,081 $674,870 $998,571 $732,812 $4,651,828 additional discussion of Westar Energy and Wolf Creek benefit "See Note 9 of the Notes to Consolidated Financial Statements, "Long-Terin plans, respectively. Debt,"for individual niaturities.

VV"Wecalculate isltelest oi1our 'Variable rate debt based on the efiective interest OFF-BALANCE SHEET ARRANGEMENTS raites as of Deceiiber31, 2012.

"Our contribution sasnoiuits for future periods are not yet known. See Notes I1 As discussed under "- Common Stock Issuance" above and and 12 of the Notes to Consolidated FinancialStatements, "iEmploycc Benefit Plans" and "Wolf Creek Employee Benefit Plans,."for additional infonnation in Note 16 of the Notes to Consolidated Financial Statements, regardingpension and post-retireiientbenefits.

"Common and Preferred Stock,"Westar Energy entered into two "' Includes principaland inteuc'st on capitnl leases.

separate forward sale agreements in 2010 and completely settled Includes leases for operatingficilities, operatingequipiment, office space. qffice the transactions under one agreement in 2011. The forward sale equipment, vehicles and tail cars as well as other miscellaneous commitments.

agreements are off-balance sheet arrangements. We also have off- See Note 17 of the Notes to Consolidated Financial StateInlents, "Variabli Interest Entities,"for additional information on VIEs.

balance sheet arrangements in the form of operating leases and Coal and naturalgas eomninodityl and transportationcontracts.

letters of credit entered into in the ordinary course of business. raiiUranium eoncenhates, conversion, eiirchinent,.fibricationi7iid sp'ent nuclear For additional information on operating leases, see Note 18 of fuel disposal.

the Notes to Consolidated Financial Statements, "Leases'.' See Includes obligations to SPP for transmission service paymients. See Note 13

"- Commercial Commitments" below for additional information of the Notes to Consolidaied Financial Statements, "Commitments and Contingencies," for additionalillformation.

regarding our letters of credit. We did not have any additional Ve have $1.7 million of umu'cognized income tax benefits, including interest, W'

off-balance sheet arrangements as of December 31, 2012. that are not included isi this table because We 07ac17ot reasoninbluy estiiiate the tinilng of the Cash paylmemits to taxing authoritiesassuwii,' those unrecognfized income tar benefits are settled at the amounts accruedas qf December 31, 2012.

361

WESTAR ENERGY I 2012 ANNUAL REPORT Commercial Commitments FERC Proceedings Our commercial commitments as of December 31, 2012, consist In October 2012, we posted our updated transmission formula rate of outstanding letters of credit that expire in 2013, some of which that includes projected 2013 transmission capital expenditures and automatically renew annually. The letters of credit are comprised operating costs. The updated rate was effective in January 2013 of $9.6 nillion related to new transmission projects, $1.7 million and is expected to increase our annual transmission revenues by related to energy marketing and trading activities, $0.8 million approximately $12.2 million.

related to workers' compensation, and $2.4 million related to other Our transmission fonlula rate that includes projected 2012 operating activities, for a total outstanding balance of $14.5 million.

transmission capital expenditures and operating costs was effective in January 2012 and was expected to increase our OTHER INFORMATION annual transmission revenues by approximately $38.2 million.

Sustainable Cost Reduction Activities The transmission formula rate provides the basis for our annual We have been reviewing our operations to identify sustainable cost request with the KCC to adjust our retail prices to include updated savings. This review involves identifying process improvements, transmission costs necessary to serve our retail customers.

streamlining organizational structures, and developing other labor Wolf Creek Outage and non-labor efficiencies. To date in this ongoing effort, we have Wolf Creek normally operates on an 18-month planned refueling identified approximately $16.0 million of anticipated annualized and maintenance outage schedule. However, as a result of an savings and recorded $4.5 million of expense during 2012 related unscheduled maintenance outage at Wolf Creek in early 2012 to achieving these cost savings.

coupled with the longer than planned refueling and maintenance outage in the spring of 2011, we were able to defer the next planned CHANGES IN PRICES refueling and maintenance outage from the fall of 2012 to the first KCC Proceedings quarter of 2013.

In October 2012, the KCC issued an order allowing us to adjust New Financial Regulation our prices to include previously deferred arnotmts associated with In 2010, the Dodd-Frank Wall Street Reform and Consumer various energy efficiency programs. The new prices were effective Protection Act (Dodd-Frank Act) was signed into law. Although in October 2012 and are expected to increase our annual retail the Dodd-Frank Act is focused primarily on the regulation and revenues by approximately $1.1 million.

oversight of financial institutions, it also calls for new regulation In September 2012, the KCC issued a final order approving an of the derivatives markets, including mandatory clearing of adjustment to our prices that we implemented in April 2012. The certain swaps, exchange trading, margin requirements and other adjustment includes updated transmission costs as reflected in transparency requirements, which could impact our operations and our transmission formula rate effective in January 2012 discussed consolidated financial results. As certain of these regulations for below and is expected to increase our annual retail revenues the Dodd-Frank Act have not yet been finalized, we carnot predict by approximately $36.7 million. We filed an application with the what the impact might be. We will continue to evaluate the Dodd-KCC in February 2013 to adjust our prices to include updated Frank Act as implementing regulations are finalized.

transmission costs as reflected in our transmission fornula rate effective in January 2013 discussed below. If approved, we estimate Stock-Based Compensation that the new prices will increase our annual retail revenues by We use two types of restricted share units (RSUs) for our stock-approximately $9.1 million. We expect the KCC to issue an order based compensation awards; those with service requirements on our request in March 2013. and those with performance measures. See Note 11 of the Notes to Consolidated Financial Statements, "Employee Benefit Plans,"

In May 2012, the KCC issued an order allowing us to adjust our for additional infornation. Total unrecognized compensation prices to include costs associated with investments in air quality cost related to RSU awards with only service requirements was equipment made in 2011. The new prices were effective in June

$4.2 million as of December 31, 2012, and we expect to recognize 2012, and are expected to increase our annual retail revenues by these costs over a remaining weighted-average period of 1.7 years.

approximately $19.5 million.

Total unrecognized compensation cost related to RSU awards with In April 2012, the KCC issued an order expected to increase performance measures was $3.5 million as of December 31, 2012, our annual retail revenues by approximately $50.0 million. In and we expect to recognize these costs over a remaining weighted-addition, we revised our depreciation rates to reflect changes in average period of 1.7 years.

the estimated useful lives of some of our depreciable assets. The change in estimate will decrease annual depreciation expense by

$43.6 million. The new prices were effective shortly after having received the order. The KCC also approved our request to file an abbreviated rate review within 12 months of this order to update our prices to include capital costs related to environmental projects at La Cygne. We plan to file an abbreviated rate review in April 2013 for recovery of approximately $350.0 nmllion of our share of the La Cygne environmental upgrades.

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WESTAR ENERGY I 2012 ANNUAL REPORT ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES Factors that affect our commodity price exposure are the quantity ABOUT MARKET RISK and availability of fuel used for generation, the availability of our Our fuel procurement and energy marketing activities involve power plants and the quantity of electricity customers consume.

primary market risk exposures, including commodity price risk, Quantities of fossil fuel we use to generate electricity fluctuate credit risk and interest rate risk. Commodity price risk is the from period to period based on availability, price and deliverability potential adverse price impact related to the purchase or sale of of a given fuel type, as well as planned and unscheduled outages electricity and energy-related products. Credit risk is the potential at our generating plants that use fossil fuels. Our commodity adverse financial impact resulting from non-performance by a price exposure is also affected by our nuclear plant refueling and counterparty of its contractual obligations. Interest rate risk is the maintenance schedule. Our customers' electricity usage also varies potential adverse financial impact related to changes in interest based on weather, the economy and other factors.

rates. In addition, our investments in trusts to fund nuclear plant We trade various types of fuel primarily to reduce exposure related decommissioning and to fund non-qualified retirement benefits to the volatility of commodity prices. A significant portion of our give rise to security price risk. Many of the securities in these trusts coal requirements is purchased under long-term contracts to are exposed to price fluctuations in the capital markets. hedge much of the fuel exposure for customers. If we were unable Commodity Price Risk to generate an adequate supply of electricity for our customers, We engage in both financial and physical trading with the goal of we would purchase power in the wholesale market to the extent managing our commodity price risk, enhancing system reliability it is available, subject to possible transnmission constraints, and/or implement curtailment or interruption procedures as permitted in and increasing profits. We procure and trade electricity coal, our tariffs and terms and conditions of service.

natural gas and other energy-related products by utilizing energy commodity contracts and a variety of financial instruments, One way by which we manage and measure the commodity price including futures contracts, options and swaps. risk of our trading portfolio is by using a variance/covariance value-Within our energy trading portfolio, we may establish certain at-risk (VaR) model. In addition toVaR, we employ additional risk control processes such as stress testing, daily loss limits, credit positions intended to economically hedge a portion of physical sale or purchase contracts and we may enter into certain positions limits and position limits. We expect to use similar control processes attempting to take advantage of market trends and conditions. in the future. The use of VaR requires assumptions, including the We use the term economic hedge to mean a strategy intended to selection of a confidence level and a measure of volatility associated manage risks of volatility in prices or rate movements on selected with potential losses and the estimated holding period. We express VaR as a potential dollar loss based on a 95% confidence level assets, liabilities or anticipated transactions by creating a relationship in which gains or losses on derivative instruments are expected to using a one-day holding period and a 20-day historical observation offset the losses or gains on the assets, liabilities or anticipated period. It is possible that actual results may differ significantly transactions exposed to such market risks. At the time we enter from assumptions. Accordingly, VaR may not accurately reflect our into these transactions, we are unable to detem-fine the hedge value levels of exposure. The energy trading and market-based wholesale until the agreements are actually settled. Our future exposure to portfolioVaR amounts for 2012 and 2011 were as follows:

changes in prices will be dependent on the market prices and the 2012 2011 extent and effectiveness of any economic hedging arrangements (InThousands) into which we enter. Additionally, net open positions exist, or are High ........................................... $ 309 $ 272 established, due to the origination of new transactions and our Lo w . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 31 Average ......................................... 84 113 assessment of, and response to, changing market conditions. To the extent we have net open positions, we are exposed to the risk We have considered a variety of risks and costs associated with the that changing market prices could have a material impact on our future contractual commitments included in our trading portfolios.

consolidated financial results.

These risks include valuation and marking of illiquid pricing We use various types of fuel, including coal, natural gas, uranium locations and products, the financial condition of our counterparties and diesel to operate our plants and also purchase power to meet and interest rate movement. See the credit risk and interest rate risk customer demand. Our prices and consolidated financial results discussions below for additional information. Also, there can be no are exposed to market risks from commodity price changes for assurance that the employment ofVaR, credit practices or other risk electricity and other energy-related products as well as from interest management tools we employ will eliminate possible losses.

rates. Volatility in these markets impacts our costs of purchased power, costs of fuel for our generating plants and our participation in energy markets. We strive to manage our customers' and our exposure to these market risks through regulatory, operating and financing activities and, when we deem appropriate, we economically hedge a portion of these risks through the use of derivative financial instruments for non-trading purposes.

381

WESTAR ENERGY 1 2012 ANNUAL REPORT Credit Risk $121.9 million of variable rate bonds insured by bond insurers.

We are exposed to counterparty default risk with our retail, Interest rates payable under these bonds are normally set through wholesale and energy marketing activities, including participation periodic auctions. However, conditions in the credit markets over in RTOs. Such credit risk is associated with the financial condition the past few years caused a dramatic reduction in the demand of counterparties, product location (basis) pricing differentials, for auction bonds, which led to failed auctions. The contractual physical liquidity constraints and other risks. Declines in the provisions of these securities set forth an indexing fomnula method creditworthiness of our counterparties could have a material by which interest will be paid in the event of an auction failure.

impact on our overall exposure to credit risk. We maintain credit Depending on the level of these reference indices, our interest costs policies with regard to our counterparties intended to reduce our may be higher or lower than what they would have been had the overall credit risk. We also employ additional credit risk control securities been auctioned successfully. Additionally, should insurers mechanisms that we believe are appropriate, such as requiring of those bonds experience a decrease in their credit ratings, such counterparties to issue letters of credit or parental guarantees event would most likely increase our borrowing costs. Furthermore, in our favor and entering into master netting agreements with a decline in interest rates generally can serve to increase our pension counterparties that allow for offsetting exposures. and post-retirement benefit obligations.

Certain of our derivative instruments contain collateral provisions Security Price Risk subject to certain of our debt ratings. If such debt ratings were We maintain the NDT, as required by the NRC and Kansas statute, to decrease or fall below investment grade, the counterparties to fund certain costs of nuclear plant decommissioning. As of to the derivative instruments, pursuant to the provisions, coLild December 31, 2012, investments in the NDT were allocated 61% to require collateralization on derivative instruments. The aggregate equity securities, 29% to debt securities, 5% to combination debt/

fair value of all derivative instruments with objective credit-risk- equity securities, 5% to real estate securities and less than 1% to related contingent features that were in a liability position as of cash equivalents. As of December 31, 2012 and 2011, the fair value December 31, 2012 and 2011, was $0.8 million and $3.1 million, of the NDT investments was $150.8 million and $130.3 million, respectively, for which we had posted no collateral as of either respectively. Changes in interest rates and/or other market changes date. If all credit-risk-related contingent features underlying these resulting in a 10% decrease in the value of the securities would agreements had been triggered as of December 31, 2012 and 2011, have resulted in a $15.1 million decrease in the value of the NDT as we would have been required to provide to our counterparties of December 31, 2012.

$0.1 million and $0.5 million, respectively, of additional collateral after taking into consideration the offsetting impact of derivative We also maintain a trust to fund non-qualified retirement benefits.

assets and net accounts receivable. As of December 31, 2012, investments in the trust were comprised of 65% equity securities, 35% debt securities and less than 1%

Interest Rate Risk cash equivalents. The fair value of the investments in this trust We have entered into numerous fixed and variable rate debt was $43.5 million as of December 31, 2012, and $40.2 million as of obligations. For details, see Note 9 of the Notes to Consolidated December 31, 2011. Changes in interest rates and/or other market Financial Statements, "Long-Tenn Debt!' We manage our interest changes resulting in a 10% decrease in the value of the securities rate risk related to these debt obligations by limiting our exposure to would have resulted in a $4.3 million decrease in the value of the variable interest rate debt, diversifying maturity dates and entering trust as of December 31, 2012.

into treasury yield hedge transactions. We may also use other By maintaining diversified portfolios of securities, we seek to financial derivative instruments such as interest rate swaps. We maximize the returns to fund the aforementioned obligations compute and present information about the sensitivity to changes within acceptable risk tolerances, including interest rate risk.

in interest rates for variable rate debt and current maturities of However, many of the securities in the portfolios are exposed to fixed rate debt by assuming a 100 basis point change in the current price fluctuations in the capital markets. If the value of the securities interest rates applicable to such debt over the remaining time the diminishes, the cost of funding the obligations rises. We actively debt is outstanding.

monitor the portfolios by benchmarking the performance of the We had approximately $4871 million of variable rate debt and investments against relevant indices and by maintaining and current maturities of fixed rate debt as of December 31, 2012. A periodically reviewing the asset allocations in relation to established 100 basis point change in interest rates applicable to this debt policy targets. Our exposure to security price risk related to the NDT would impact income before income taxes on an annualized basis is in part mitigated because we are currently allowed to recover by approximately $4.8 million. As of December 31, 2012, we had decommissioning costs in the prices we charge our customers.

139

WESTAR ENERGY 1 2012 ANNUAL REPORT ITEM 8. FINANCIAL STATEMENTS AND MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER SUPPLEMENTARY DATA FINANCIAL REPORTING We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(t) promulgated TABLE OF CONTENTS tinder the Securities Exchange Act of 1934 as a process designed PAGE by, or tinder the supervision of, the company's principal executive Management's Report on Internal Control and principal financial officers and effected by the company's Over Financial Reporting .................... 40 board of directors, management and other personnel, to provide Reports of Independent Registered Public reasonable assurance regarding the reliability of financial reporting Accounting Finn ........................... 41 and the preparation of financial statements for external 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 Consolidated Balance Sheets as of accurately and fairly reflect the transactions and dispositions of December 31, 2012 and 2011 ................ 43 the assets of the company; Consolidated Statements of Income s Provide reasonable assurance that transactions are recorded for the years ended December 31, 2012, as necessary to permit preparation of financial statements in 2011 and 2010 ............................. 44 accordance with GAAP, and that receipts and expenditures of the Consolidated Statements of Cash Flows company are being made only in accordance with authorizations for the years ended December 31, 2012, of management and directors of the company; and 2011 and 2010 ............................. 45 " Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Consolidated Statements of Changes company's assets that could have a material effect on the financial in Equity for the years ended statements.

December 31, 2012, 2011 and 2010 ........... 46 Notes to Consolidated Financial Statements .......... 47 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of Financial Schedtules:

any evaluation of effectiveness to fumture periods are subject to the Schedule II -Valuation and Qualifying Accounts ...... 78 risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or SCHEDULES OMITTED procedures may deteriorate.

The following schedules are omitted because of the absence of We assessed the effectiveness of our internal control over financial the conditions under which they are required or the infomnation reporting as of December 31, 2012. In making this assessment, is included in our consolidated financial statements and schedLdes we used the criteria set forth by the Committee of Sponsoring presented:

Organizations of the Treadway Commission in Internal Control-I, III, IV and V. Integrated Framework. Based on the assessment, we concluded that, as of December 31, 2012, our internal control over financial reporting is effective based on those criteria. Our independent registered public accounting firm has issued an audit report on the company's internal control over financial reporting.

401

WESTAR ENERGY 1 2012 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Westar Energy, Inc.

Topeka, Kansas We have audited the internal control over financial reporting in reasonable detail, accurately and fairly reflect the transactions of Westar Energy, Inc. and subsidiaries (the "Company") as and dispositions of the assets of the company; (2) provide of December 31, 2012, based on criteria established in Internal reasonable assurance that transactions are recorded as necessary Control- Integrated Framework issued by the Committee of to permit preparation of financial statements in accordance with Sponsoring Organizations of the Treadway Commission. The generally accepted accounting principles, and that receilts and Company's management is responsible for maintaining effective expenditures of the company are being made only in accordance internal control over financial reporting and for its assessment with authorizations of management and directors of the company; of the effectiveness of internal control over financial reporting, and (3) provide reasonable assurance regarding prevention or included in the accompanying management's report on internal timely detection of unauthorized acquisition, use, or disposition control over financial reporting. Our responsibility is to express of the company's assets that could have a material effect on the an opinion on the Company's internal control over financial financial statements.

reporting based on our audit.

Because of the inherent limitations of internal control over financial We conducted our audit in accordance with the standards of the reporting, including the possibility of collusion or improper Public Company Accounting Oversight Board (United States). management override of controls, material misstatements due to Those standards require that we plan and perform the audit to error or fraud may not be prevented or detected on a timely basis.

obtain reasonable assurance about whether effective internal Also, projections of any evaluation of the effectiveness of the internal control over financial reporting was maintained in all material control over financial reporting to future periods are subject to the respects. Our audit included obtaining an understanding of internal risk that the controls may become inadequate because of changes control over financial reporting, assessing the risk that a material in conditions, or that the degree of compliance with the policies or weakness exists, testing and evaluating the design and operating procedures may deteriorate.

effectiveness of internal control based on the assessed risk, and hi our opinion, the Company maintained, in all material respects, perforn-ing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable effective internal control over financial reporting as of December 31, 2012, based on the criteria established in hItenial Control - Ihitcgrated basis for our opinion.

Framework issued by the Committee of Sponsoring Organizations A company's internal control over financial reporting is a process of the Treadway Commission.

designed by, or under the supervision of, the company's principal We have also audited, in accordance with the standards of the executive and principal financial officers, or persons performing Public Company Accounting Oversight Board (United States), the similar functions, and effected by the company's board of directors, consolidated financial statements and financial statement schedule management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company as of and for the year ended December 31, of financial statements for external purposes in accordance with 2012 and our report dated February 28, 2013 expressed an unqualified opinion on those financial statements and financial generally accepted accounting principles. A company's internal statement schedule.

control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, /s/ Deloitte &Touche LLP Kansas City, Missouri February 28, 2013 141

WESTAR ENERGY I 2012 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Westar Energy, Inc.

Topeka, Kansas We have audited the accompanying consolidated balance sheets In our opinion, such consolidated financial statements present of Westar Energy, Inc. and subsidiaries (the "Company") as fairly, in all material respects, the financial position of Westar of December 31, 2012 and 2011, and the related consolidated Energy, Inc. and subsidiaries as of December 31, 2012 and 2011, and statements of income, changes in equity, and cash flows for each of the results of their operations and their cash flows for each of the the three years in the period ended December 31, 2012. Our audits three years in the period ended December 31, 2012, in conformity also included the financial statement schedule listed in the Index with accounting principles generally accepted in the United States at Item 15. These financial statements and financial statement of 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),

Those standards require that we plan and perform the audit to the Company's internal control over financial reporting as of obtain reasonable assurance about whether the financial statements December 31, 2012, based on the criteria established in Internal are free of material misstatement. An audit includes examining, Control- Integrated Framework issued by the Committee of Spon-on a test basis, evidence supporting the amounts and disclosures soring Organizations of the Treadway Commission and our in the financial statements. An audit also includes assessing the report dated February 28, 2013 expressed an unqualified opinion accounting principles used and significant estimates made by on the Company's internal control over financial reporting.

management, as well as evaluating the overall financial statement Is/ Deloitte &Touche LLP presentation. We believe that our audits provide a reasonable basis for our opinion. Kansas City, Missouri February 28, 2013 421

WESTAR ENERGY I 2012 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2012 2011 (Dollar, in Thousands, Except ParValues)

ASSETS CURRENT ASSETS:

C ash and cash equivalents ............................................................. $ 5,829 $ 3,539 Restricted cash . . . .. . . . . . . . .. . . .. . . .. . .. . .. .. . . .. . . .. . .. . .. .. . .. . .. . .. . .. . .. .. . .. .. . 573 Accounts receivable, net of allowance for doubtful accounts of $4,916 and $7,384, respectively .... 224,439 226,428 Fuel inventory and supplies ............................................................ 249,016 229,118 Taxes receivab le ...................................................................... 5,334 D eferred tax assets ................................................................... 394 P rep aid exp en ses ..................................................................... 15,847 13,078 R egu latory assets ..................................................................... 114,895 123,818 O th e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,476 31,876 Total Curren t Assets ............................................................... 643,075 633,585 PROPERTY, PLANT AND EQUIPM ENT, NET .................................................... 7,013,765 6,411,922 PROPERTY, PLANT AND EQUIPMENT OF VARIABLE INTEREST ENTITIES, NET ......................... 321,975 333,494 OTHER ASSETS:

R egu lato ry assets ..................................................................... 887,777 922,272 N uclear decom m issioning trust ......................................................... 150,754 130,270 Oth e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,885 251,308 To tal O th er A ssets ................................................................. 1,286,416 1,303,850 T OTA L A SS ET S .......................................................................... $ 9,265,231 $ 8,682,851 LIABILITIES AND EQUITY CURRENT LIABILITIES:

Current maturities of long-term debt of variable interest entities ............................. $ 25,942 $ 28,114 Sh o rt-term d ebt ...................................................................... 339,200 286,300 A ccou n ts p ayable .................................................................... 180,825 187,428 A ccrued dividends ................................................................... 41,743 40,463 A ccru ed taxes ....................................................................... 58,624 52,451 A ccru ed in te rest ..................................................................... 77,891 77,437 R egu latory liabilities .................................................................. 37,557 40,857 O th e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,359 114,237 Total C urrent L iabilities ............................................................ 846,141 827,287 LONG-TERM LIABILITIES:

L ong-term debt, net .................................................................. 2,819,271 2,491,109 Long-term debt of variable interest entities, net .......................... ................ 222,743 249,283 Deferred incom e taxes ............................................... ................ 1,197,837 1,110,463 Unam ortized investm ent tax credits ..................................................... 191,512 164,175 Regu lato ry liabilities ................................................. ................ 285,618 230,530 A ccrued em ployee benefits ............................................................ 564,870 592,617 Asset retirem ent obligations ........................................................... 152,648 142,508 O th e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... ... ..... .... 74,336 74,138 Total Long-Term Liabilities ..... ..... ............................................... 5,508,835 5,054,823 COMMITMENTS AND CONTINGENCIES (SEE NOTES 13 AND 15)

EQUITY:

Westar Energy, Inc. Shareholders' Equity:

Cumulative preferred stock, par value $100 per share; authorized 600,000 shares; issued and outstanding zero shares and 214,363 shares, respective to each date ........... 21,436 Common stock, par value $5 per share; authorized 275,000,000 shares; issued and outstanding 126,503,748 shares and 125,698,396 shares, respective to each date .... 632,519 628,492 Paid -in cap ital . . .. . . .. . .. . .. . . .. . . .. . . .. .. . . .. .. . . .. . . .. .. . .. . .. . .. . .. . .. . .. .. . .. . .. . 1,656,972 1,639,503 R etained earn in gs .................................................................... 606,649 501,216 Total W estar Energy, Inc. Shareholders' Equity ....... .................................. 2,896,140 2,790,647 N oncontrolling Interests ................................................................. 14,115 10,094 Total E q u ity . .. . . .. .. . . .. . . .. . . .. . . .. . .. . .. . .. . .. . .. . .. . . .. . .. .. . .. .. . . .. .. . .. . .. . 2,910,255 2,800,741 TOTAL LIABILITIES AND EQ UITY ............................................................ $ 9,265,231 $ 8,682,851 143 77he acconmpanyVing notes are an integral part of these consolidatedfinancialstatements.

WESTAR ENERGY I 2012 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2012 2011 2010 (Dollars in Thousands, Except Per Share Amounts)

REV EN U ES .. . .. . .. . .. . .. . . .. . .. . .. .. .. . .. .. . .. . .. .. . .. .. . .. . .. .. $ 2,261,470 $ 2,170,991 $ 2,056,171 OPERATING EXPENSES:

Fuel and purchased pow er ...................................... 589,990 630,793 583,361 O perating and m aintenance .................................... 612,871 557,752 520,409 Depreciation and am ortization .................................. 270,464 285,322 271,937 Selling, general and adm inistrative ............................... 226,012 184,695 207,607 Total Operating Expenses ........................... ........ 1,699,337 1,658,562 1,583,314 INCOM E FROM OPERATIONS ........................................ 562,133 512,429 472,857 OTHER INCOME (EXPENSE):

Investm ent earnings ........................................... 7,411 9,301 7,026 O ther incom e ................................................ 35,378 8,652 5,369 Other expense ................................................ (19,987) (18,398) (16,655)

Total O ther Incom e (Expense) ................................ 22,802 (445) (4,260)

In terest expense ................................................. 176,337 172,460 174,941 INCOME BEFORE INCOME TAXES .................................... 408,598 339,524 293,656 Incom e tax expense .............................................. 126,136 103,344 85,032 N ET IN C O M E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,462 236,180 208,624 Less: Net income attributable to noncontrolling interests ............... 7,316 5,941 4,728 NET INCOME ATTRIBUTABLE TO WESTAR ENERGY ....................... 275,146 230,239 203,896 Preferred dbiidends .............................................. 1,616 970 970 NET INCOME ATTRIBUTABLE TO COMMON STOCK ...................... s 273,530 $ 229,269 $ 202,926 BASIC AND DILUTED EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE TO WESTAR ENERGY (see Note 2):

Basic earnings per common share ............................. $ 2.15 $ 1.95 $ 1.81 Diluted earnings per common share ........................... $ 2.15 $ 1.93 $ 1.80 AVERAGE EQUIVALENT COMMON SHARES OUTSTANDING ............... 126,711,869 116,890,552 111,629,292 DIVIDENDS DECLARED PER COMMON SHARE .......................... $ 1.32 $ 1.28 $ 1.24 441 Die acconmpanying notes are an inteSpral part of these consolidatedfinancial statements.

WESTAR ENERGY I 2012 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2012 2011 2010 (Dollars in Thousands)

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:

N e t in co m e .. . . . .. . .. . . .. . .. . . . .. . .. . . .. . .. . .. . .. . . .. . .. . . .. .. . .. .. . $ 282,462 $ 236,180 $ 208,624 Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and am ortization ...................................... 270,464 285,322 271,937 A m ortization of nuclear fuel ........................................ 24,369 21,151 25,089 Amortization of deferred regulatory gain from sale leaseback ............. (5,495) (5,495) (5,495)

Amortization of corporate-owned life insurance ........................ 28,792 25,650 20,650 N on-cash com pensation ........................................... 7,255 8,422 11,373 Net changes in energy marketing assets and liabilities ................... (372) 926 (1,284)

Net deferred income taxes and credits ................................ 126,248 111,723 120,169 Stock-based compensation excess tax benefits ......................... (1,698) (1,180) (641)

Allowance for equity funds used during construction .................... (11,706) (5,550) (3,104)

Gain on sale of non-utility investm ent ................................ (7,246)

Gain on settlement of contractual obligations with former officers ......... (22.039)

Changes in working capital items:

A ccounts receivable ................................................ 2,408 (1,638) (11,434)

Fuel inventory and supplies ......................................... (19,227) (21,485) (12,266)

Prepaid expenses and other ......................................... (3,630) (50,138) 8,475 A ccounts payable ................................................. (19,161) 3,008 30,330 A ccrued taxes ..................................................... 11,937 18,633 27,565 O ther current liabilities ............................................. (105,169) (107,012) (80,660)

C hanges in other assets ............................................... 13,015 (10,167) (42,544)

Changes in other liabilities ............................................. (1,386) (16,369) 40,918 Cash Flows from Operating Activities .............................. 599,106 462,696 607,702 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:

Additions to property plant and equipment .............................. (810,209) (697,451) (540,076)

Purchase of securities w ithin trusts ...................................... (20,473) (49,737) (192,350)

Sale of securities within trusts .......................................... 21,604 47,534 191,603 Proceeds from trust ................................................... 2,022 - -

Investment in corporate-owned life insurance ............................ (18,404) (19,214) (19,162)

Proceeds from investment in corporate-owned life insurance ................ 33,542 1,295 2,204 Proceeds from federal grant ............................................ 4,775 8,561 3,180 Investm ent in affiliated com pany ....................................... (8,669) (1,943) (280)

Proceeds from sale of non-utility investments ............................. - 9,246 -

O ther investing activities .............................................. (1,525) 193 (1,164)

Cash Flows used in Investing Activities ............................. (797,337) (701,516) (556,045)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:

Short-term debt, net .................................................. 52,900 54,081 (16,060)

Proceeds from long-term debt .......................................... 541,374 - -

Retirem ents of long-term debt ......................................... (220,563) (371) (1,695)

Retirements of long-term debt of variable interest entities ................... (28,114) (30,159) (28,610)

Repaym ent of capital leases ............................................ (2,679) (2,233) (2,981)

Borrowings against cash surrender value of corporate-owned life insurance .... 67,791 67,562 74,134 Repayment of botTowings against cash surrender value of corporate-ow ned life insurance .................................... (34,838) (3,421) (3,430)

Stock-based compensation excess tax benefits ............................ 1,698 1,180 641 Preferred stock redem ption ................... ........................ (22,567) - -

Issuance of com m on stock .................... ........................ 6,996 294,942 54,651 Distributions to shareholders of noncontrolling interests .................... (3,295) (1,917) (2,093)

C ash dividends paid .................................................. (158,182) (138,233) (129,146)

Cash Flows from (used in) Financing Activities ...................... 200,521 241,431 (54,589)

NET INCREASE (DECREASE) INCASH AND CASH EQUIVALENTS ................... 2,290 2,611 (2,932)

CASH AND CASH EQUIVALENTS:

Beginning of period ...... .. ......................................... 3,539 928 3,860 E n d o f p erio d ........................................................ S 5,829 $ 3,539 $ 928 145 The accompanying notes are an integral part of these consolidated.financialstatements.

WESTAR ENERGY 1 2012 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Westar Energy, Inc. Shareholders Cumulative Cumulative Non-preferred preferred Common Common Paid-in Retained controlling Total stock shares stock stock shares stock capital earnings interests equity (Dollars in Thousands)

Balance as of December 31, 2009 ....... 214,363 $ 21,436 109,072,000 $ 545,360 $1,339,790 $ 360,199 $ $ 2,266,785 N et incom e ............... 203,896 4,728 208,624 Issuance of stock ........... 3,056,068 15,280 50,759 66,039 Preferred dividends ........ (970) (970)

Dividends on common stock ($1.24 per share) - (139,478) - (139,478)

Transfer to temporary equity ........ (22) (22)

Amortization of restricted stock ......... - 10,710 10,710 Stock compensation and tax benefit .......... - (2,657) - - (2,657)

Consolidation of noncontrolling interests.. - 3,435 3,435 Distributions to shareholders of noncontrolling interests.. - (2,093) (2,093)

Balance as of December 31, 2010 ....... 214, 363 21,436 112,128,068 560,640 1,398,580 423,647 6,070 2,410,373 N et incom e ............... 230,239 5,941 236,180 Issuance of stock ........... 13,570,328 67,852 243,081 - 310,933 Preferred dividends ........ (970) - (970)

Dividends on common stock

(.$1.28 per share) ........ (151,700) - (151,700)

Transfer from temporary equity ........ 3,465 - 3,465 Amortization of restricted stock ......... - 7,698 7,698 Stock compensation and tax benefit .......... -- (13,321) (13,321)

Distributions to shareholders of noncontrolling interests.. - - - - - (1,917) (1,917)

Balance as of December 31, 2011 ....... 214,363 21,436 125,698,396 628,492 1,639,503 501,216 10,094 2,800,741 Net incom e ............... - - - - 275,146 7,316 282,462 Issuance of stock ........... - 805,352 4,027 19,143 - - 23,170 Stock redemption .......... (214,363) (21,436) - - - - (21,436)

Preferred dividends ........ ..... (1,616) - (1,616)

Dividends on common stock ($1.32 per share) ... .- (168,097) - (168,097)

Amortization of restricted stock ......... .... 6,430 - - 6,430 Stock compensation and tax benefit .......... .... (8,104) - - (8,104)

Distributions to shareholders of noncontrolling interests.. .- - - (3,295) (3,295)

Balance as of December 31, 2012 ....... - S - 126,503,748 $ 632,519 $1,656,972 $ 606,649 $ 14,115 $ 2,910,255 461 The accompanyingnotes are an integralpart of these consolidatedfinancialstatements.

WESTAR ENERGY I 2012 ANNUAL REPORT WESTAR ENERGY, INC. Cash and Cash Equivalents We consider investments that are highly liquid and have maturities NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of three months or less when purchased to be cash equivalents.

1. DESCRIPTION OF BUSINESS Restricted Cash We are the largest electric utility in Kansas. Unless the context Pursuant to Westar Energy's Articles of Incorporation, Westar otherwise indicates, all references in this Annual Report on Form Energy deposited cash in a separate bank account to effect the 10-K to "the company," "we," "us," "our" and similar words are redemption of all of Westar Energy's preferred stock in 2012. See to Westar Energy, Inc. and its consolidated subsidiaries. The Note 16,"Common and Preferred Stock,"for additional information term "Westar Energy" refers to Westar Energy, Inc., a Kansas regarding the preferred stock redemption.

corporation incorporated in 1924, alone and not together with its Fuel Inventory and Supplies consolidated subsidiaries.

We state fuel inventory and supplies at average cost. Foflowing are We provide electric generation, transmission and distribution the balances for fuel inventory and supplies stated separately.

services to approximately 690,000 customers in Kansas. Westar As of December 31, 2012 2011 Energy provides these services in central and northeastern Kansas, (InThousands) including the cities of Topeka, Lawrence, Manhattan, Salina and Fuel inventory .................................. $ 94,664 $ 86,408 Hutchinson. Kansas Gas and Electric Company (KGE), Westar Supplies ....................................... 154,352 142,710 Energy's wholly-owned subsidiary, provides these services in Total .............................. ... ... .. $ 249,0 16 $ 229,118 south-central and southeastern Kansas, including the city of Wichita. Both Westar Energy and KGE conduct business using the name Westar Energy. Our corporate headquarters is located Property, Plant and Equipment at 818 South Kansas Avenue, Topeka, Kansas 66612. We record the value of property, plant and equipment, including that of VIEs, at cost. For plant, cost includes contracted services,

2.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES direct labor and materials, indirect charges for engineering and supervision, and an allowance for funds used during construction Principles of Consolidation (AFUDC). AFUDC represents the allowed cost of capital used We prepare our consolidated financial statements in accordance to finance utility construction activity. We compute AFUTDC with GAAP for the United States of America. Our consolidated by applying a composite rate to qualified construction work in financial statements include all operating divisions, majority progress. We credit other income (for equity ftmds) and interest owned subsidiaries and variable interest entities (VIEs) of which expense (for borrowed funds) for the amount of AFUDC capitalized we maintain a controlling interest or are the primary beneficiary as construction cost on the accompanying consolidated statements reported as a single reportable segment. Undivided interests in of income as follows:

jointly-owned generation facilities are included on a proportionate Year Ended December 31, 2012 2011 2010 basis. Intercompany accounts and transactions have been (Dollars In Thousands) eliminated in consolidation. Borrowed funds ........................ $10,399 $ 5,589 $ 4,295 Equity funds ........................... 11,706 5,550 3,104 Use of Management's Estimates Total ............................... $ 22,105 $11,139 $ 7,399 When we prepare our consolidated financial statements, we are required to make estimates and assumptions that affect the Average AFUDC Rates ................... 5.0% 3.6% 2.6%

reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of We charge maintenance costs and replacements of minor items our consolidated financial statements and the reported amounts of of property to expense as incurred, except for maintenance costs revenues and expenses during the reporting period. We evaluate incurred for our planned refueling and maintenance outages at our estimates on an ongoing basis, including those related to Wolf Creek. As authorized by regulators, we defer and amortize depreciation, unbilled revenue, valuation of investments, forecasted to expense ratably over the period between planned outages fuel costs included in our retail energy cost adjustment (RECA) incremental maintenance costs incurred for such outages. When a billed to customers, income taxes, pension and post-retirement unit of depreciable property is retired, we charge to accumulated benefits, our asset retirement obligations (AROs) including the depreciation the original cost less salvage value.

decommissionting of Wolf Creek Generating Station (Wolf Creek), Depreciation environmental issues, VIEs, contingencies and litigation. Actual We depreciate utility plant using a straight-line method. The results may differ from those estimates under different assumptions depreciation rates are based on an average annual composite basis or conditions.

using group rates that approximated 2.6% in 2012, 3.0% in 2011 Regulatory Accounting and 2.9% in 2010.

We apply accounting standards that recognize the economic effects of rate regulation. Accordingly, we have recorded regulatoly assets and liabilities when required by a regulatory order or based on regulatory precedent. See Note 3,"Rate Matters and Regulation,"for additional information regarding our regulatory assets and liabilities.

147

WESTAR ENERGY I 2012 ANNUAL REPORT Depreciable lives of property, plant and equipment are as follows. value our energy marketing derivative contracts when such data are available. When market prices are not readily available or Years Fossil fuel generating facilities ....................................

determinable, we use alternative approaches, such as model 6 to 78 Nuclear fuel generating facility .................................... 33 to 71 pricing. The prices we use to value these transactions reflect our Wind generating facilities ........................................ 19 to 20 best estimate of the fair value of these contracts. Results actually Transm ission facilities ........................................... 15 to 75 achieved from these activities could vary materially from intended Distribution facilities ............................................ 15 to 70 Othe r. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

results and could affect our consolidated financial results.

5 to 30 Allowance for Doubtful Accounts Nuclear Fuel We determine our allowance for doubtful accounts based on We record as property, plant and equipment our share of the cost the age of our receivables. We charge receivables off when of nuclear fuel used in the process of refinement, conversion, they are deemed uncollectible, which is based on a number enrichment and fabrication. We reflect this at original cost and of factors including specific facts surrounding an account and amortize such amounts to fuel expense based on the quantity of management's judgment.

heat consumed during the generation of electricity as measured in millions of British thermal units (MvM\/lBtut). The accumulated Income Taxes amortization of nuclear fuel in the reactor was $69.2 million as of We use the asset and liability method of accounting for income December 31, 2012, and $44.8 million as of December 31, 2011.The taxes. Under this method, we recognize deferred tax assets and cost of nuclear fuel charged to fuel and purchased power expense liabilities for the future tax consequences attributable to temporary was $28.3 million in 2012, $24.6 million in 2011 and $29.2 million differences between the financial statement carrying amounts and in 2010. the tax basis of existing assets and liabilities. We recognize the future tax benefits to the extent that realization of such benefits is Cash Surrender Value of Life Insurance more likely than not. We amortize deferred investment tax credits We recorded on our consolidated balance sheets in other long- over the lives of the related properties as required by tax laws and term assets the following amounts related to corporate-owned life regulatory practices. We recognize production tax credits in the year insurance policies. that electricity is generated to the extent that realization of such As of December 31, 2012 2011 benefits is more likely than not.

(in Thousands)

We record deferred tax assets to carry forward into future periods Cash surrender value of policies .................... $1,370,788 $1,345,443 capital losses, operating losses and tax credits. However, when we Borrowings against policies ....................... (1,241,343) (1,208,389) believe based on available evidence that we do not, or will not, have Corporate-owned life insurance, net ............... $ 129,445 $ 137,054 sufficient future capital gains or taxable income in the appropriate taxing jurisdiction to realize the entire benefit during the applicable We record as income increases in cash surrender value and death carryforward period, we record a valuation allowance against the benefits. We offset against policy income the interest expense that deferred tax asset.

we incur on policy loans. Income from death benefits is highly variable from period to period. The application of income tax law is complex. Laws and regulations in this area are voluminous and often ambiguous. Accordingly, Revenue Recognition we must make judgments regarding income tax exposure.

Electricity Sales Interpretations of and guidance surrounding income tax laws and We record revenue at the time we deliver electricity to customers. regulations change over time. As a result, changes in our judgments We determine the amounts delivered to individual customers can materially affect amounts we recognize in our consolidated through systematic monthly readings of customer meters. At financial statements. See Note 10, "Taxes,"for additional, detail on the end of each month, we estimate how much electricity we our accounting for income taxes.

have delivered since the prior meter reading and record the corresponding unbilled revenue. Sales Tax We account for the collection and remittance of sales tax on a net Our unbilled revenue estimate is affected by factors including basis. As a result, we do not reflect sales tax in our consolidated fluctuations in energy demand, weather, line losses and changes statements of income.

in the composition of customer classes. We recorded estimated unbilled revenue of $62.5 million as of December 31, 2012, and Earnings Per Share

$54.0 nmillion as of December 31, 2011. We have participating securities in the form of unvested restricted Energy Marketing Contracts share units (RSUs) with nonforfeitable rights to dividend equivalents that receive dividends on an equal basis with dividends We account for energy marketing derivative contracts under the declared on common shares. As a result, we apply the two-class fair value method of accounting. Under this method, we recognize method of computing basic and diluted earnings per share (EPS).

changes in the portfolio value as gains or losses in the period of change. With the exception of certain fuel supply and electricity Under the two-class method, we reduce net income attributable to contracts, which we record as regulatory assets or regulatory common stock by the amount of dividends declared in the current liabilities, we include the net change in fair value in revenues on our period. We allocate the remaining earnings to common stock and consolidated statements of income. We record the unrealized gains RSUs to the extent that each security may share in earnings as if all and losses in other current assets and other current liabilities or of the earnings for the period had been distributed. We determine in other assets and other long-term liabilities on our consolidated the total ean-ings allocated to each security by adding together balance sheets as appropriate. We use quoted market prices to the amount allocated for dividends and the amount allocated 481

WESTAR ENERGY I 2012 ANNUAL REPORT for a participation feature. To compute basic EPS, we divide the 3. RATE MATTERS AND REGULATION earnings allocated to common stock by the weighted average number of common shares outstanding. Diluted EPS includes Regulatory Assets and Regulatory Liabilities the effect of potential issuances of common shares resulting Regulatory assets represent incurred costs that have been deferred from our forward sale agreements, RSUs with forfeitable rights because they are probable of future recovery in customer prices.

to dividend equivalents and stock options. We compute the Regulatory liabilities represent probable future reductions in dilutive effect of potential issuances of common shares using the revenue or refunds to customers through the price setting process.

treasury stock method. Regulatory assets and liabilities reflected on our consolidated balance sheets are as follows.

The following table reconciles our basic and diluted EPS from net income. As of December 31, 2012 2011 (InThousands)

Year Ended December 31, 2012 2011 2010 Regulatory Assets:

(Dollars InThousands, Except Per Share Amounts) Deferred employee benefit costs ................... $ 542,174 $ 560,915 Net income .................... $ 282,462 $ 236,180 $ 208,624 Amounts due from customers for future income taxes, net 169,091 168,804 Less: Net income attributable to Dep reciatio n .. . . .. . .. . . . .. . .. . .. . . .. . .. . . .. . .. 73,672 76,298 noncontrolling interests ......... 7,316 5,941 4,728 Debt reacquisition costs ......................... 67,721 66,856 Treasury yield hedges ........................... 28,573 33,753 Net income attributable to Asset retirement obligations ...................... 22,633 22,196 Westar Energy, Inc .............. 275,146 230,239 203,896 Ad valorem tax ................................ 21,812 6,622 Less: Preferred dividends ......... 1,616 970 970 Energy efficiency program costs ................... 18,835 16,521 Net income allocated to RSUs 778 772 1,259 Disallowed plant costs ............ ............. 16,106 16,236 Net income allocated to Wolf Creek outage ............... ............. 14,143 25,033 common stock ................ $ 272,752 $ 228,497 $ 201,667 Sto rm co sts . . . .. . .. . .. . . . . .. . .. . .. . . .. . .. . . .. 11,076 25,747 Retail energy cost adjustment ..................... 4,262 19,587 Weighted average equivalent common Other regulatory assets .......................... 12,574 7,522 shares outstanding - basic ....... 126,711,869 116,890,552 111,629,292 Effect of dilutive securities: Total regulatory assets ......................... $1,002,672 $1,046,090 RSUs ...................... 97,757 188,025 140,077 Regulatory Liabilities:

Forward sale agreements ....... 89,160 1,211,645 245,496 Rem oval costs ................................. $ 128,971 $ 82,338 Employee stock options ........ - - 59 Deferred regulatory gain from sale leaseback ......... 92,046 97,541 Weighted average equivalent common Nuclear decom m issioning ........................ 25,937 12,544 shares outstanding - diluted"' ..... 126,898,786 118,290,222 112,014,924 La Cygne dismantling costs ....................... 18,093 15,680 Retail energy cost adjustment ..................... 16,595 25,225 Earnings per common share, basic... $ 2.15 $ 1.95 $ 1.81 Kansas tax credits ..... . ....................... 10,781 8,497 Earnings per common share, diluted . $ 2.15 $ 1.93 $ 1.80 Other post-retirement benefits costs ................ 10,722 11,125 f"For the years ended Deceniber 31, 2012, 2021 and 2010, we hiad no antidilutive Gain on sale of oil ............................. 6,219 5,822 shares. Fuel supply and electricity contracts ................ 4,387 6,177 Other regulatory liabilities ........................ 9,424 6,438 Supplemental Cash Flow Information Total regulatory liabilities ....................... $ 323,175 $ 271,387 Year Ended December 31, 2012 2011 2010 (InThousands) Below we summarize the nature and period of recovery for each of CASH PAID FOR (RECEIVED FROM): the regulatory assets listed in the table above.

Interest on financing activities, " Deferred employee benefit costs: Includes $485.5 million for net of amount capitalized .............. $143,564 $145,570 $145,463 Interest on financing activities of VlEs ....... 16,214 18,167 20,191 pension and post-retirement benefit obligations and $56.7 million Income taxes, net of refunds ............. (4,378) (17,519) (34,980) for actual pension expense in excess of the amount of such NON-CASH INVESTING TRANSACTIONS: expense recognized in setting our prices. During 2013, we will Property, plant and equipment additions ..... 89,354 105,435 64,423 amortize to expense approximately $44.2 million of the benefit Property, plant and equipment obligations and approximately $9.8 million of the excess pension additions of VIEs ...................... - - 356,964 Jeffrey Energy Center (JEC) 8%

expense. As authorized in the April 2012 KCC order discussed leasehold interest ............. ....... . - - (108,706) below, we are amortizing the excess pension expense as of the NON-CASH FINANCING TRANSACTIONS: time of our filing with the KCC over a five-year period. We do not Issuance of common stock for reinvested earn a return on this asset.

dividends and compensation plans ....... 12,803 15,103 18,777

" Amounts due from customers for future income taxes, net: In Debt of VIEs .......................... - - 337,951 Capital lease for JEC 8% leasehold accordance with various orders, we have reduced our prices to interest ............................ - - (106,423) reflect the income tax benefits associated with certain income Assets acquired through capital leases ...... 10,683 43,011 910 tax deductions, thereby passing on these benefits to customers at the time we receive them. We believe it is probable that the Investment Earnings - Sale of Non-utility Investment net future increases in income taxes payable will be recovered In 2011, we recorded a $7.2 million gain on the sale of a non-utility from customers when these temporary income tax benefits investment. reverse in future periods. We have recorded a regulatory asset, net of the regulatory liability, for these amounts on which we do not earn a return. We also have recorded a regulatory liability for our obligation to customers for income taxes recovered in earlier periods when corporate income tax rates were higher 149

WESTAR ENERGY I 2012 ANNUAL REPORT than current income tax rates. This benefit will be returned

• Other regulatory assets: Includes various regulatory assets that to customers as these temporary differences reverse in future individually are small in relation to the total regulatory asset periods. The income tax-related regulatory assets and liabilities balance. Other regulatory assets have various recovery periods.

as well as unamortized investment tax credits are also temporary We do not earn a return on any of these assets.

differences for which deferred income taxes have been provided.

Below we summarize the nature and period of amortization for These items are measured by the expected cash flows to be each of the regulatory liabilities listed in the table above.

received or settled in future prices. We do not earn a return on this asset. " Removal costs: Represents amounts collected, but not yet spent, to dispose of plant assets that do not represent legal

" Depreciation: Represents the difference between regulatory retirement obligations. This liability will be discharged as depreciation expense and depreciation expense we record for removal costs are incurred.

financial reporting purposes. We earn a return on this asset and

" Deferred regulatory gain from sale leaseback: Represents the amortize the difference over the life of the related plant.

gain KGE recorded on the 1987 sale and leaseback of its 50%

" Debt reacquisition costs: Includes costs incurred to reacquire and interest in La Cygne Generation Station (La Cygne) unit 2. We refinance debt. These costs are amortized over the term of the amortize the gain over the lease term.

new debt. We do not earn a return on this asset. " Nuclear decommissioning: We have a legal obligation to

" Treasury yield hedges: Represents the effective portion of losses on decommission Wolf Creek at the end of its useful life.This amount treasury yield hedge transactions. This amount will be amortized represents the difference between the fair value of the assets held to interest expense over the term of the related debt. See Note 4, in a decommissioning trust and the fair value of our ARO. See "Financial and Derivative Instruments, Trading Securities, Energy Note 4,"Financial and Derivative Instruments, Trading Securities, Marketing and Risk Management - Derivative Instruments- Energy Marketing and Risk Managemnent,"Note 5, "Financial Cash Flow Hedges,"for additional information regarding our Investments" and Note 14, "Asset Retirement Obligations"for treasury yield hedge transactions. We do not earn a return on this information regarding our nuclear decommissioning trust (NDT) asset. and our ARO.

" Asset retirement obligations: Represents amounts associated " La Cygne dismantling costs: We are contractually obligated to with our AROs as discussed in Note 14, "Asset Retirement dismantle a portion of La Cygne unit 2. This item represents Obligations.' We recover these amounts over the life of the amounts collected but not yet spent to dismantle this unit and related plant. We do not earn a return on this asset. the obligation will be discharged as we dismantle the unit.

" Ad valorem tax: Represents actual costs incurred for property " Retail energy cost adjustment: We are allowed to adjust our retail taxes in excess of amounts collected in our prices. We expect to prices to reflect changes in the cost of fuel and purchased power recover these amounts in our prices over a one-year period. We needed to serve our customers. We bill customers based on our do not earn a return on this asset. estimated costs. This item represents the amoumt we collected

" Energy efficiency program costs: We accumulate and defer for from customers that was in excess of our actual cost of fuel future recovery costs related to our various energy efficiency and purchased power. We will refund to customers this excess programs. We will amortize such costs over a one-year period. recovery over a one-year period. We have two retail jurisdictions, We do not earn a return on this asset. each with a separate cost of fuel. For the reporting period, this

" Disallowed plant costs: In 1985, the Kansas Corporation resulted in us simultaneously reporting both a regulatory asset Commission (KCC) disallowed certain costs associated with the and a regulatory liability for this item.

original construction of Wolf Creek. In 1987, the KCC authorized " Kansas tax credits: Represents Kansas tax credits on investments KGE to recover these costs in prices over the useful life of Wolf in utility plant. Amounts will be credited to customers subsequent Creek. We do not earn a return on this asset. to their realization over the remaining lives of the utility plant

" Wolf Creek outage: We defer the expenses associated with Wolf giving rise to the tax credits.

Creek's scheduled refueling and maintenance outages and " Other post-retirement benefits costs: Represents the amount of amortize these expenses during the period between planned other post-retirement benefits expense recognized in setting our outages. We do not earn a return on this asset. prices in excess of actual other post-retirement benefits expense.

" Storm costs: We accumulated and deferred for future recovery We amortize the amount over a five-year period.

costs related to restoring our electric transmission and distribution " Gain on sale of oil: We discontinued the use of a certain type of systems from damages sustained during unusually damaging oil in our plants. As a result, we sold this oil inventory for a gain.

storms. We amortize these costs over periods ranging from three This item represents the remaining portion of the gain that will to five years and earn a return on a majority of this asset. be refunded to customers over a three-year period.

" Retail energy cost adjustment: We are allowed to adjust our retail " Fuel supply and electricity contracts: We use fair value accounting prices to reflect changes in the cost of fuel and purchased power for some of our fuel supply and electricity contracts. This needed to serve our customers. This item represents the actual represents the non-cash net gain position on fuel supply and cost of fuel consumed in producing electricity and the cost of electricity contracts that are recorded at fair value. Under the purchased power in excess of the amounts we have collected RECA, fuel supply contract market gains accrue to the benefit of from customers. We expect to recover in our prices this shortfall our customers.

over a one-year period. We have two retail jurisdictions, each with " Other regulatory liabilities: Includes various regulatory liabilities a separate cost of fuel. For the reporting period, this resulted in us that individually are relatively small in relation to the total simultaneously reporting both a regulatory asset and a regulatory regulatory liability balance. Other regulatory liabilities will be liability for this item. We do not earn a return on this asset. credited over various periods.

501

WESTAR ENERGY I 2012 ANNUAL REPORT KCC Proceedings FERC Proceedings General and Abbreviated Rate Reviews In October of each year, we post an updated transmission formula In April 2012, the KCC issued an order expected to increase our rate that includes projected transmission capital expenditures and annual retail revenues by approximately $50.0 million. In addition, operating costs for the following year. This rate provides the basis we revised our depreciation rates to reflect changes in the estimated for our annual request with the KCC to adjust our retail prices to useful lives of some of our depreciable assets. The change in include updated transmission costs as noted above. In the most estimate will decrease annual depreciation expense by $43.6 million. recent three years, we posted our transmission formula rate which The new prices were effective shortly after having received the was expected to increase our annual transmission revenues by order. The KCC also approved our requ.est to file an abbreviated approximately:

rate review within 12 months of this order to update our prices to * $38.2 nmllion effective in January 2012; include capital costs related to environmental projects at La Cygne. * $15.9 million effective in January 2011; and In January 2010, the KCC issued an order allowing us to adjust * $16.8 million effective in January 2010.

our prices to include costs associated with investments in natural

4. FINANCIAL AND DERIVATIVE INSTRUMENTS, gas and wind generation facilities. The new prices were effective TRADING SECURITIES, ENERGY MARKETING in February 2010 and were expected to increase our annual retail AND RISK MANAGEMENT revenues by approximately $17.1 million.

Values of Financial and Derivative Instruments Environmental Costs GAAP establishes a hierarchal framework for disclosing the In August 2011, the KCC issued an order ruling that Kansas City transparency of the inputs utilized in measuring assets and liabilities Power & Light Company's (KCPL) decision to make environmental at fair value. Our assessment of the significance of a particular input upgrades at La Cygne to comply with environmental regulations is to the fair value measurement requires judgment and may affect the prudent and the $1.2 billion project cost estimate is reasonable. We classification of assets and liabilities within the fair value hierarchy have a 50% interest in La Cygne and intervened in the proceeding. levels. The three levels of the hierarchy and examples are as follows:

The KCC denied our request to collect our approximately

" Level 1 - Quoted prices are available in active markets for

$610.0 million share of the capital investment for the environmental identical assets or liabilities. The types of assets and liabilities upgrades through our environmental cost recovery rider (ECRR).

included in level 1 are highly liquid and actively traded However, as noted above, the KCC approved our request to file an instruments with quoted prices, such as equities listed on public abbreviated rate review to update our prices to include capital costs exchanges and exchange-traded futures contracts.

associated with the project.

" Level 2 - Pricing inputs are not quoted prices in active markets, We also make annual filings with the KCC to adjust our prices to but are either directly or indirectly observable. The types of assets include costs associated with investments in air quality equipment and liabilities included in level 2 are typically measured at net made during the prior year. In the most recent three years, the KCC asset value, comparable to actively traded securities or contracts, issued orders related to such filings allowing us to increase our such as treasury securities with pricing interpolated from recent annual retail revenues by approximately: trades of similar securities, or priced with models using highly 0 $19.5 million effective in June 2012; observable inputs, such as commodity options priced using 0 $10.4 million effective in June 2011; and observable forward prices and volatilities.

a $13.8 million effective in June 2010. " Level 3 - Significant inputs to pricing have little or no transparency. The types of assets and liabilities included in Transmission Costs level 3 are those with inputs requiring significant management We make arnual filings with the KCC to adjust our prices to judgment or estimation, such as the complex and subjective include updated transmission costs as reflected in our transmission models and forecasts used to determine the fair value of options, formula rate discussed below. In the most recent three years, the private equity and real estate securities and long-term electricity KCC issued orders related to such filings allowing us to increase supply contracts.

our annual retail revenues by approximately:

We record cash and cash equivalents, short-term borrowings and E $36.7 nmlion effective in April 2012; variable rate debt on our consolidated balance sheets at cost, which 0 $17.4 million effective in April 2011; and approximates fair value. We measure the fair value of fixed rate debt, N $6.4 million effective in March 2010. a level 2 measurement, based on quoted market prices for the same Energy Efficiency or similar issues or on the current rates offered for instruments of We make annual filings with the KCC to adjust our prices to include the same remaining maturities and redemption provisions. The previously deferred amounts associated with various energy recorded amount of accounts receivable and other current financial efficiency programs. In the most recent three years, the KCC issued instruments approximates fair value.

orders related to such filings allowing us to increase our annual All of our level 2 investments are held in investment funds that retail revenues by approximately: are measured at fair value using daily net asset values. In addition, 0 $1.1 million effective in October 2012; we maintain certain level 3 investments in private equity and real 0 $4.9 million effective in November 2011; and estate securities that are also measured at fair value using net asset 0 $5.8 million effective in November 2010. value, but require significant unobservable market information to measure the fair value of the underlying investments. The 151

WESTAR ENERGY 1 2012 ANNUAL REPORT underlying investments in private equity are measured at fair value Recurring Fair Value Measurements utilizing both market- and income-based models, public company The following table provides the amounts and their corresponding comparables, investment cost or the value derived from subsequent level of hierarchy for our assets and liabilities that are measured at financings. Adjustments are made when actual performance differs fair value.

from expected performance; when market, economic or company-As of December 31, 2012 Level 1 Level 2 Level 3 Total specific conditions change; and when other news or events have (in Thousands) a material impact on the security. The underlying real estate Assets:

investments are measured at fair value using a combination of Energy Marketing Contracts ..... - $ 381 $ 8,429 $ 8,810 market- and income-based models utilizing market discount rates, Nuclear Decommissioning Trust:

projected cash flows and the estimated value into perpetuity. Domestic equity ............ . - 56,157 4,899 61,056 International equity .......... - 30,041 - 30,041 Energy marketing contracts can be exchange-traded or traded Core bonds ................ - 28,350 - 28,350 High-yield bonds ............ - 8,782 - 8,782 over-the-counter (OTC). Fair value measurements of exchange-Emerging market bonds ...... - 6,428 - 6,428 traded contracts typically utilize quoted prices in active markets. Combination debt/equity fund . - 8,194 - 8,194 OTC contracts are valued using market transactions and other Real estate securities ......... - - 7,865 7,865 market evidence whenever possible, including market-based Cash equivalents ............ 38 - - 38 inputs to models, model calibration to market clearing transactions Total Nuclear Decommissioning or alternative pricing sources with reasonable levels of price Trust .................. 38 137,952 12,764 150,754 transparency.Valuation models require a variety of inputs, including Trading Securities:

contractual tenns, market prices, yield curves, credit curves, Domestic equity ............ . - 22,470 - 22,470 nonperformance risk, measures of volatility and correlations of International equity .......... - 5,744 - 5,744 Core bonds ................ - 15,104 - 15,104 such inputs. Certain OTC contracts trade in less liquid markets Cash equivalents ............ 166 - - 166 with limited pricing information and the determination of fair Total Trading Securities ...... 166 43,318 - 43,484 value for these derivatives is inherently more subjective. In these situations, estimates by management are a significant input. Our Total Assets Measured at Fair Value ................... $ 204 $181,651 $ 21,193 $203,048 risk management department, which reports to the Chief Financial Officer, has established valuation processes and procedures to Liabilities:

ensure that the valuation methodologies for energy marketing Energy Marketing Contracts ..... $ - $ 105 $ 1,367 $ 1,472 transactions are fair and consistent. Methodologies are periodically As of December 31. 2011 Level 1 Level 2 Level 3 Total reviewed and tested to ensure they are representative of the current (In Thousands) market dynamics. See "- Recurring Fair Value Measurements" Assets:

and"- Derivative Instruments"below for additional information. Energy Marketing Contracts ..... S - $ 2,401 $ 13,330 $ 15,731 Nuclear Decommissioning Trust:

We measure fair value based on information available as of the Domestic equity ............ . - 53,186 3,931 57,117 measurement date.The following table provides the carrying values International equity .......... - 22,307 - 22,307 and measured fair values of our fixed-rate debt. Core bonds ................ - 20,171 - 20,171 High-yield bonds ............ - 10,969 - 10,969 As of December 31, 2012 As of December 31, 2011 Emerging market bonds ...... - 5,309 - 5,309 Combination debt/equity fund . - 7,251 - 7,251 Carrying Value Fair Value Carrying Value Fair Value Real estate securities ......... - - 7,095 7,095 (In Thousands) Cash equivalents ............ 51 - - 51 Fixed-rate debt ........... $2,702,500 $3,178,752 $2,373,063 $2,623,993 Total Nuclear Decommissioning Fixed-rate debt of VIEs ..... 247,624 275,341 275,738 306,027 Trust .................. 51 119,193 11,026 130,270 Trading Securities:

Domestic equity ............ -- 21,175 - 21,175 International equity .......... - 4,896 - 4,896 Core bonds ................ - 13,961 - 13,961 Cash equivalents ............ 169 - - 169 Total Trading Securities ...... 169 40,032 - 40,201 Total Assets Measured at Fair Value. $ 220 $161,626 $ 24,356 $186,202 Liabilities:

Energy Marketing Contracts ..... $ - $ 2,475 $ 3,878 $ 6,353 Treasury Yield Hedges .......... - 34,025 - 34,025 Total Liabilities Measured at Fair Value ................... $ -- $ 36,500 $ 3,878 $ 40,378 We do not offset the fair value of energy marketing contracts executed with the same counterparty. As of December 31, 2012, we had no right to reclaim cash collateral and had recorded

$1.8 million for our obligation to return cash collateral. As of December 31, 2011, we had no right to reclaim cash collateral and had recorded $2.9 million for our obligation to return cash collateral.

521

WESTAR ENERGY 1 2012 ANNUAL REPORT The following table provides reconciliations of assets and liabilities Our level 3 investments require unobservable quantitative inputs to measured at fair value using significant level 3 inputs for the years measure fair value.The following table summarizes the quantitative ended December 31, 2012 and 2011. inputs and assumptions for our level 3 investments not measured at net asset value.

Nuclear Decommissioning Trust Energy Fair Value as of December 31, 2012 Marketing Domestic High-yield Real Estate Net Assets Liabilities Contracts, net Equity Bonds Securities Balance (InThousands)

(InThousands)

Balance as of Electricity - Forwards ......................... $ 862 $ 358 December31, 2011 ... $ 9,452 $ 3,931 $ - $ 7,095 $20,478 Gas - Forwards ............................. - 74 Total realized and Options .................................... 7,567 935 unrealized gains (losses) Total ..................................... $ 8,429 $ 1,367 included in:

1 . .. .. . .. .

Earnings ' 2,176 - - - 2,176 Valuation Regulatory assets ... (696)()i - - (696) Methodology Unobservable Inputs Range of Inputs Regulatory liabilities . 2,11411 90 - 770 2,974 Purchases ............. (5,034) 891 - 320 (3,823) Electricity - Forwards ... Discounted Sales ................ (620) (13) - (320) (953) cash flow Basis (MWh) $0 to $15 Settlements ........... (330) - - - (330) Gas - Forwards ....... Discounted cash flow Basis (mmBtu) $0 to $0.25 Balance as of Options .............. Discounted December 31, 2012 ... $ 7,062 $ 4,899 $ - $ 7,865 $19,826 cash flow Basis - Electricity (MWh) $0 to $15 Balance as of Basis - Gas (mmBtu) $0 to $0.25 December31, 2010... $11,815 $ 2,867 $ 305 $ 3,049 $18,036 Option models Volatility - Electricity 10% to 75%

Total realized and Volatility - Gas 20% to 35%

unrealized gains (losses) Correlation 60% to 90%

included in:

Earnings, .......... 603 - - - 603 Regulatory assets ... (1,450)(' - - - (1,450) Our fair value measurement of energy marketing contracts is Regulatory liabilities . 2,99 3 bN 479 - 670 4,142 sensitive to level 3 fair value inputs. hicreases or decreases to one Purchases ............. (6,145) 608 - 3,455 (2,082) unobservable input may magnify or mitigate the impact of other Sales ................ 1,022 (23) (305) (79) 615 Settlements ........... 614 - - - 614 inputs. Holding all other inputs constant, an increase (decrease) ima significant unobservable input would typically impact our fair Balance as of December 31, 2011 ... $ 9,4S2 $ 3,931 $ - $ 7,095 $20,478 value measurement as follows.

L hUnrealized gains amd losses included in earnings atie reported Significant Impact on Fair in revenues. Unobservable Input Position Value Measurement ahIncludes changes in the fair 7al1e ofccrtain fiuel supply and electhicity contracts.

Basis ......................... Purchase Increase (decrease)

Sell Decrease (increase)

Portions of the gains and losses contributing to changes in net assets Volatility ....................... Purchase Option Increase (decrease) in the above table are unrealized. The following table summarizes Sell Option Decrease (increase)

Correlation .................... Purchase Option Decrease (increase) the unrealized gains and losses we recorded on our consolidated Sell Option Increase (decrease) financial statements during the years ended December 31, 2012 and 2011, attributed to level 3 assets and liabilities.

Nuclear Decommissioning Trust Energy Marketing Domestic Real Estate Net Year Ended December 31, 2012 Contracts, net Equity Securities Balance (InThousands)

Total unrealized gains (losses) included in:

5 . .. . ... . .. .. ..

Earnings ý.... $ (748) $ - $ - $ (748)

Regulatory assets ............ ( 74 )" - - (74)

Regulatory liabilities .......... 332 M 77 451 860 Total .................... $ (490) $ 77 $ 451 $ 38 Year Ended December 31, 2011 Total unrealized gains (losses) included in:

5 Earnings1 ..

$ (898) $ $ - $ (898)

Regulatory assets ............ ( 74 7 )(bi - (747)

Regulatory liabilities .......... 1,736(l) 456 591 2,783 Total .................... $ 91 $ 456 $ 591 $ 1,138 Unrealizedgains and losses included in earnings are reportcd in revenus.

Incl,, chudeschanges in the fiur value of certaiii fiuel supply and electricity contnWts.

53

WESTAR ENERGY 1 2012 ANNUAL REPORT Some of our investments in the NDT and our trading securities portfolio are measured at net asset value, do not have readily determinable fair values and are either with investment companies or companies that follow accounting guidance consistent with investment companies.

In certain situations these investments may have redemption restrictions. The following table provides additional information on these investments.

As of December 31, 2012 As of December 31, 2011 As of December 31, 2012 Unfunded Unfunded Redemption Length of Fair Value Commitments Fair Value Commitments Frequency Settlement (in Thousands)

Nuclear Decommissioning Trust:

Dom estic equity .................................................. $ 4,899 $ 1,024 $ 3,931 $ 1,914 W Real estate securities ............................................... 7,865 - 7,095 - Quarterly 80 days Total Nuclear Decommissioning Trust ................................. $ 12,764 $ 1,024 $ 11,026 $ 1,914 Trading Securities:

Domestic equity .................................................. $ 22,470 $ - $ 21,175 $ - Upon Notice 1 day International equity ............................................... 5,744 - 4,896 - Upon Notice I day Core bonds ..................................................... 15,104 - 13,961 - Upon Notice I day Total Trading Securities ........................................... 43,318 - 40,032 -

Total ............................................................ $ 56,082 $ 1,024 $ 51,058 $ 1,914 This 7 investhent is in t70'o Iong-tern private equiC t flids that do not pennit early wyithidrawal. Our investinents in these filids cannot be dishibuted until the underlying investnents huveC been liquidatedwhich may take years fiomn the date of initial liquidation, Onefiid has begnm making distributionsand woe expect the other to begin in 2013.

Nonrecurring Fair Value Measurements payments using market-based models with observable inputs We have recognized legal obligations associated with the disposal such as the spread between the 30-year U.S Treasury bill yield and of long-lived assets that result from the acquisition, construction, the contracted, fixed yield. As a result of regulatory accounting development or normal operations of such assets. In 2012, we treatment, we report the effective portion of the gains or losses on recorded $3.1 million of additional AROs. In 2011, we recorded these derivative instruments as a regulatory liability or regulatory

$9.9 nmillion of additional AROs to reflect revisions to the estimated asset and amortize such amounts to interest expense over the term cost to decommission Wolf Creek. We initially record AROs at fair of the related debt. As of December 31, 2011, we had recorded value for the estimated cost to satisfy the retirement obligation. $34.0 million in other cunent liabilities on our consolidated balance sheet to reflect the fair value of the treasury yield hedge transactions We measure the fair value of AROs by estimating the cost to and $33.8 million in long-term regulatory assets to reflect the satisfy the retirement obligation then discounting that value at a effective portion. We recorded $0.2 nmlion of hedge ineffectiveness risk- and inflation-adjusted rate. To determine the cost to satisfy losses in interest expense on our consolidated statements of income the retirement obligation, experts reporting to the Chief Operating for the year ended December 31, 2011. During the first quarter of Officer must estimate the cost of basic inputs such as labor, 2012, we settled the treasury yield hedge transactions for a cost energy, materials, tinming and disposal and make assumptions on of $29.7 million, which will be amortized to interest expense over the method of disposal or decommissioning. Our estimates are the 30-year term of the debt issued in March 2012. See Note 9, validated with contractor estimates and when we satisfy other "Long-Term Debt" for additional information regarding the debt sin-dlar obligations. We estimate the cost to satisfy the 2012 ARO issuance. As of December 31, 2012, we had recorded $28.6 million layer as of December 31, 2012, is approximately $3.1 million. as a regulatory asset.

To detennine the appropriate discount rate, we use observable Commodity Contracts inputs such as inflation rates, short and long-term yields for U.S. We engage in both financial and physical trading with the goal of government securities and our nonperformance risk. Due to the managing our commodity price risk, enhancing system reliability significant unobservable inputs required in our measurement, we and increasing profits. We trade electricity and other energy-related have determined that our fair value measurements of our AROs are products using a variety of financial instrunents, which may include level 3 in the fair value hierarchy. For additional information on our futures contracts, options, swaps and physical conminodity contracts.

AROs, see Note 14,"Asset Retirement Obligations."

We classify these commodity derivative instruments as other current Derivative Instruments and other long-term assets and liabilities on our consolidated Cash Flow Hedges balance sheets. We report energy marketing contracts representing We entered into treasuTy yield hedge transactions to hedge our unrealized gain positions as assets; energy marketing contracts interest rate risk associated with a $125.0 million portion of a representing unrealized loss positions are reported as liabilities.

forcaseted issuance of fixed rate debt. These transactions were With the exception of certain fuel supply and electricity contracts, designated and qualified as cash flow hedges and measured which we record as regulatory assets or regulatory liabilities, we at fair value by estimating the net present value of a series of include the change in the fair value of energy marketing contracts in 541

WESTAR ENERGY I 2012 ANNUAL REPORT revenues on our consolidated statements of income. The following to manage risks of volatility in prices or rate movements on table presents the fair value of commodity derivative instruments selected assets, liabilities or anticipated transactions by creating reflected on our consolidated balance sheets. a relationship in which gains or losses on derivative instruments are expected to offset the losses or gains on the assets, liabilities or Commodity Derivatives Not Designated as Hedging Instruments as of December 31, 2012 anticipated transactions exposed to such market risks.

Asset Derivatives Liability Derivatives Price Risk Balance Sheet Location Fair Value Balance Sheet Location Fair Value (InThousands) (InThousands)

We use various types of fuel, including coal, natural gas, uranium Current assets: Current liabilities:

and diesel to operate our plants and also purchase power to meet Other ............ $ 4,776 Other ............ customer demand. Our prices and consolidated financial results Other assets: are exposed to market risks from commodity price changes for Other .................. 4,034 electricity and other energy-related products as well as from interest Total .................... $ 8,810 rates. Volatility in these markets impacts our costs of purchased power, costs of fuel for our generating plants and our participation Commodity Derivatives Not Designated as Hedging Instruments as of December 31, 2011 in energy markets. We strive to manage our customers' and our Asset Derivatives Liability Derivatives exposure to these market risks through regulatory, operating Balance Sheet Location Fair Value Balance Sheet Location Fair Value and financing activities and, when we deem appropriate, we (in Thousands) (InThousands) economically hedge a portion of these risks through the use of Current assets: Current liabilities:

derivative financial instruments for non-trading purposes.

Other .................. $ 8,180 Other .................. $ 6,353 Interest Rate Risk Other assets:

Other .................. 7,551 We have entered into numerous fixed and variable rate debt Total .................... $ 15,73 1 obligations. For details, see Note 9,"Long-Term Debt" We manage our interest rate risk related to these debt obligations by limiting our exposure to variable interest rate debt, diversifying maturity The following table presents how changes in the fair value of dates and entering into treasury yield hedge transactions. We may commodity derivative instruments increased (decreased) line also use other financial derivative instruments such as interest items on our consolidated financial statements for the years ended rate swaps.

December 31, 2012 and 2011. Credit Risk Year Ended Year Ended In addition to commodity price risk, we are exposed to credit December 31, 2012 December 31, 2011 risks associated with the financial condition of counterparties, Net Gain Net Loss Net Gain Net Loss Location Recognized Recognized Recognized Recognized product location (basis) pricing differentials, physical liquidity (InThousands) constraints and other risks. Declines in the creditworthiness of

$ 6,200 $ $ 1,569 $ -

our counterparties could have a material impact on our overall Revenues .............. -

Regulatory assets .......... (374) - - 374 exposure to credit risk. We maintain credit policies with regard Regulatory liabilities ........ - (1,790) - (1,623) to our counterparties intended to reduce our overall credit risk exposure to a level we deem acceptable and include the right to As of December 31, 2012 and 2011, we had under contract the offset derivative assets and liabilities by counterparty.

following commodity derivatives.

We have derivative instruments with commodity exchanges and Net Quantity as of other counterparties that do not contain objective credit-risk-Unit of December 31, December 31, related contingent features. However, certain of our derivative Measure 2012 2011 instruments contain collateral provisions subject to certain of our Electricity ............................ MW h 1,955,497 1,834,253 debt ratings. If such debt ratings were to decrease or fall below Natural Gas .......................... MM Btu 1,674,000 1,467,500 investment grade, the counterparties to the derivative instruments, Net open positions exist, or are established, due to the origination of pursuant to the provisions, could require collateralization on new transactions and our assessment of, and response to, changing derivative instruments. The aggregate fair value of all derivative market conditions. To the extent we have net open positions, we instruments with objective credit-risk-related contingent features are exposed to the risk that changing market prices could have a that were in a liability position as of December 31, 2012 and 2011, material impact on our consolidated financial results. was $0.8 million and $3.1 million, respectively, for which we had posted no collateral as of either date, including independent Energy Marketing Activities amounts. If all credit-risk-related contingent features underlying Within our energy trading portfolio, we may establish certain these agreements had been triggered as of December 31, 2012 and positions intended to economically hedge a portion of physical 2011, we would have been required to provide to our counterparties sale or purchase contracts and we may enter into certain positions $0.1 million and $0.5 million, respectively, of additional collateral attempting to take advantage of market trends and conditions. after taking into consideration the offsetting impact of derivative We use the tenn economic hedge to mean a strategy intended assets and net accounts receivable.

55

WESTAR ENERGY I 2012 ANNUAL REPORT

5. FINANCIAL INVESTMENTS Gross Unrealized We report our investments in equity and debt securities at fair Security Type Cost Gain Loss Fair Value Allocation value and use the specific identification method to determine their (Dollars in Thousands) realized gains and losses. We classify these investments as either As of December 31, 2011 trading securities or available-for-sale securities as described below. Domestic equity .... $ 55,357 $ 1,760 $ - $ 57,117 44%

International equity . 24,501 - (2,194) 22,307 17%

Core bonds ....... 19,771 400 - 20,171 16%

Trading Securities High-yield bonds ... 11,046 - (77) 10,969 8%

We hold equity and debt investments which we classify as Emerging market trading securities in a trust used to fund certain retirement benefit bonds .......... 5,301 8 - 5,309 4%

obligations of $30.0 million and $29.4 million as of December 31, Combination debt/equity fund 7,524 - (273) 7,251 6%

2012 and 2011, respectively. For additional information on our Real estate securities. 9,662 - (2,567) 7,095 5%

benefit obligations, see Note 11,"Employee Benefit Plans." Cash equivalents ... 51 - - 51 <1%

As of December 31, 2012 and 2011, we measured the fair value Total ........... $133,213 $ 2,168 $(5,111) $130,270 100%

of trust assets at $43.5 million and $40.2 million, respectively. We include unrealized gains or losses on these securities in investment The following table presents the fair value and the gross unrealized earnings on our consolidated statements of income. For the years losses of the available-for-sale securities held in the NDT fund ended December 31, 2012, 2011 and 2010, we recorded unrealized aggregated by investment category and the length of time that gains of $4.1 million, $0.3 million and $4.3 million, respectively. individual securities have been in a continuous unrealized loss position as of December 31, 2012 and 2011.

Available-for-Sale Securities Less than 12 Months We hold investments in equity, debt and real estate securities in 12 Months or Greater Total a trust for the purpose of funding the decommissioning of Wolf Gross Gross Gross Creek. We have classified these investments as available-for-sale Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses and have recorded all such investments at their fair market value as (InThousands) of December 31, 2012 and 2011. As of December 31, 2012, the fair value of available-for-sale debt securities in the core, high-yield and As of December 31, 2012 Real estate emerging market bond funds was $43.6 million. As of December 31, securities ...... - $ - $7,865 $ (2,116) $ 7,865 $ (2,116) 2012, the NDT did not have investments in debt securities outside As of December 31,2011 of investment funds.

International Using the specific identification method to determine cost, we equity ........ $22,307 $(2,194) $ - $ - $22,307 S(2,194)

High-yield bonds 10,969 (77) - - 10,969 (77) realized gains on our available-for-sale securities of $0.6 nmllion in Combination 2012, $1.3 million in 2011 and $13.2 million in 2010. We record net debt/equity realized and unrealized gains and losses in regulatory liabilities on fund ....... 7,251 (273) - - 7,251 (273) our consolidated balance sheets. This reporting is consistent with Real estate securities ...... - - 7,095 (2,567) 7,095 (2,567) the method we use to account for the decomn-fissioning costs we recover in our prices. Gains or losses on assets in the trust fund are Total ....... $40,527 S(2,544) $7,095 $(2,567) $47,622 $ (5,111) recorded as increases or decreases to regulatory liabilities and Could result in lower or higher funding requirements for decommissioning costs, which we believe would be reflected in the prices paid by 6. PROPERTY, PLANT AND EQUIPMENT our customers. The following is a summary of our property, plant and equipment The following table presents the cost, gross unrealized gains and balance.

losses, fair value and allocation of investments in the NDT fund as As of December 31, 2012 2011 of December 31, 2012 and 2011. (InThousands)

Gross Unrealized Electric plant in service ....................... $9,389,192 $8,703,278 Electric plant acquisition adjustment ............ 802,318 802,318 Security Type Cost Gain Loss Fair Value Allocation Accumulated depreciation .................... (3,791,545) (3,703,372)

(Dollars inThousands) 6,399,965 5,802,224 As of December 31, 2012 Construction work in progress ................. 532,332 534,003 Domestic equity .... $53,598 $ 7,458 $ -- $ 61,056 41% Nuclear fuel, net ........................... 81,468 75,695 International equity . 28,248 1,793 -- 30,041 20%

Core bonds ....... 27,309 1,041 -- 28,350 19% Net property, plant and equipment ............ $7,013,765 $6,411,922 High-yield bonds ... 8,022 760 -- 8,782 6%

Emerging market bonds .......... 6,080 348 6,428 4% TheVEs. following is a summary of property plant and equipment Combination debt/equity fund.. 8,074 120 - 8,194 5%

Real estate securities. As of December 31, 2012 2011 9,981 (2,116) 7,865 5%

Cash equivalents ... 38 - 38 <1% (InThousands)

Total ........... $141,350 $ 11,520 Electric plant of VlEs ......................... $ 543,548 $ 543,548

$(2,116) $150,754 100%

Accumulated depreciation of VIEs .............. (221,573) (210,054)

Net property, plant and equipment of VIEs ...... $ 321,975 $ 333,494 561

WESTAR ENERGY I 2012 ANNUAL REPORT We revised our depreciation rates to reflect changes in the estimated 8. SHORT-TERM DEBT useful lives of some of our assets. We recorded depreciation expense on property, plant and equfipment of $2478 million in 2012, In 2011 Westar Energy entered into a commercial paper program

$262.6 million in 2011 and $249.2 million in 2010. Approximately pursuant to which it may issue commercial paper up to a maximum

$9.8 million, $9.8 million and $9.7 million of depreciation expense aggregate amount outstanding at any one time of $1.0 billion. This in 2012, 2011 and 2010, respectively, was attributable to property, program is supported by Westar Energy's revolving credit facilities plant and equipment of VIEs. described below. Maturities of commercial paper issuances may not exceed 365 days from the date of issuance and proceeds from such issuances will be used to temporarily fund capital expenditures, to

7. JOINT OWNERSHIP OF UTILITY PLANTS repay borrowings tinder Westar Energy's revolving credit facilities, Under joint ownership agreements with other utilities, we have for working capital and/or for other general corporate purposes.

undivided ownership interests in four electric generating stations. As of December 31, 2012, Westar Energy had issued $339.2 million Energy generated and operating expenses are divided on the same of commercial paper. Westar Energy had no commercial paper basis as ownership with each owner reflecting its respective costs outstanding as of December 31, 2011.

in its statements of income and each owner responsible for its own In September 2011, Westar Energy refinanced its existing financing. Information relative to our ownership interests in these $730.0 million revolving credit facility with a new facility in the facilities as of December 31, 2012, is shown in the table below. same amount. The commitments under the new facility terminate Owner- in September 2016. As long as there is no default under the facility, Construction ship Westar Energy may extend the facility up to an additional two In-Service Accumulated Work in Net Percent-Plant Dates Investment Depreciation Progress MW age years and may increase the aggregate amount of borrowings under (Dollars in Thousands) the facility to $1.0 billion, both subject to lender participation. All LaCygne unit 1 June 1973 $ 331,964 $ 156,722 $185,875 368 50 borrowings under the facility are secured by KGE first mortgage JEC unit 111..... July 1978 528,478 196,511 80,217 661 92 bonds. As of December 31, 2012, no amounts had been borrowed JEC unit 2" ..... May 1980 498,929 182,444 121 658 92 and $13.8 million of letters of credit had been issued tunder this JEC unit 31)...... May 1983 703,393 282,481 1,000 664 92 Wolf Creek"' .... Sept. 1985 1,524,831 756,218 99,357 547 47 revolving credit facility. As of December 31, 2011, $286.3 million State Line() ..... June 2001 114,093 49,099 34 201 40 had been borrowed and an additional $12.2 million of letters of Total .......... $3,701,688 S 1,623,475 $366,604 3,099 credit had been issued tinder this revolving credit facility.

'"*Jointhi owvned with KCPL. Our 8% leaschold interest inrJEC that is consolidated In February 2011, Westar Energy entered into a revolving credit as a VIE is reflected in the net mewgwatts (MW) and owncrship percentage facility with a syndicate of banks for $270.0 million. In February 2013, 5

provided above, but not in the other arrounts in the table. Westar Energy extended this facility by one year. This facility now lbJoirrtly owned with KCPL ard Kansas Electric Power Coopenrtive,Inc. terminates in February 2016. As long as there is no default tinder

'cJointhl owned with Empire District Elrctric Comrpany. the facility, Westar Energy may extend the facility one additional year and may increase the aggregate amount of borrowings under We include in operating expenses on our consolidated statements the facility to $400.0 minlion, both subject to lender participation.

of income our share of operating expenses of the above plants, Our All borrowings under the facility are secured by KGE first mortgage share of fuel expense for the above plants is generally based on the bonds. As of December 31, 2012 and 2011, Westar Energy had amount of power we take from the respective plants. Our share no borrowed amounts or letters of credit outstanding under this of other transactions associated with the plants is included in the revolving credit facility.

appropriate classification on our consolidated financial statements.

In addition, total combined borrowings under Westar Energy's In addition, we also consolidate aVIE that holds our 50% leasehold commercial paper program and revolving credit facilities may interest in La Cygnie unit 2, which represents 343 MW of net capacity. not exceed $1.0 billion at any given time. The weighted average The VIE's investment in the 50% interest was $392.1 million and interest rate on short-term borrowings was 0.46% and 1.49% as of accumulated depreciation was $180.2 minlion as of December 31, December 31, 2012 and 2011, respectively. Additional information 2012. We include these amounts in property, plant and equipment regarding our short-term debt is as follows.

of variable interest entities, net on our consolidated balance sheets.

As of December 31, 2012 2011 See Note 17, "Variable Interest Entities,"for additional information aboutVIEs. (Dollars fn Thousands)

Weighted average short-term debt outstanding during the year ....................... $298,907 $362,946 Weighted daily average interest rates during the year, excluding fees ..................... 0.55% 0.82%

Our interest expense on short-term debt was $3.2 million in 2012,

$3.9 million in 2011 and $1.9 million in 2010.

157

WESTAR ENERGY I 2012 ANNUAL REPORT

9. LONG-TERM DEBT The Westar Energy and KGE mortgages each contain provisions restricting the amount of first mortgage bonds that could be Outstanding Debt issued by each entity. We must comply with such restrictions The following table summarizes our long-term debt outstanding. prior to the issuance of additional first mortgage bonds or other As of December 31, 2012 2011 secured indebtedness.

(InThousands) The amount of Westar Energy first mortgage bonds authorized by Westar Energy its Mortgage and Deed of Trust, dated July 1,1939, as supplemented, First mortgage bond series:

6.00% due 2014 ............................. 250,000 $ 250,000 is subject to certain limitations as described below. The amount of 5.15% due 20 17 ............................. 125,000 125,000 KGE first mortgage bonds authorized by the KGE Mortgage and 5.95% due 2035 ............ ................ 125,000 125,000 Deed of Trust, dated April 1, 1940, as supplemented and amended, 5.10% due 2020 .............................. 2250,000 250,000 is limited to a maximum of $3.5 billion, unless amended further.

5.875% due 2036 ............................ 150,000 1 150,000 First mortgage bonds are secured by utility assets. Amounts of 6.10% due 2047 ............................. - 150,000 8.625% due 2018 ............................ 300,000 300,000 additional bonds that may be issued are subject to property, 4.125% due 2042 ............................ 55o,ooo - earnings and certain restrictive provisions, except in connection 1,750,000 1,350,000 with certain refundings, of each mortgage. As of December 31, 2012, approximately $830.0 million principal amount of additional Pollution control bond series:

Variable due 2032, 0.32% as of December 31, 2012; first mortgage bonds could be issued under the most restrictive 0.22% as of December 31, 2011 ............... 45,000 45,000 provisions in Westar Energy's mortgage, except in connection Variable due 2032, 0.26% as of December 31, 2012; with certain refundings. As of December 31, 2012, approximately 0.24% as of December 31, 2011 ...............

5.00% due 2033 ............................. - 57,5 $870.0 nilion principal amount of additional KGE first mortgage bonds could be issued under the most restrictive provisions in 75,500 132,745 KGE's mortgage.

KGE First mortgage bond series: As of December 31, 2012, we had $121.9 million of variable rate, 6.53% due 2037 ............................. 175,000 175,000 tax-exempt bonds. While the interest rates for these bonds have 6.15% due 2023 ............................. 50,000 50,000 been extremely low, we continue to monitor the credit markets and 6.64% due 2038 ............................. 100,000 100,000 6.70% due 20 19 ............................. 3 100.000 300.000 evaluate our options with respect to these bonds.

625,000 625,000 In May 2012, Westar Energy issued $300.0 million principal amount Pollution control bond series: of first mortgage bonds at a discount yielding 4.157%, bearing 5.10% due 2023 ............................. - 13,318 stated interest at 4.125% and maturing in March 2042.These bonds Variable due 2027, 0.26% as of December 31, 2012; constitute a further issuance of a series of bonds initially issued in 0.28% as of December 31, 2011 ...............

5.30% due 2031 ............................. 108,600 108,600 March 2012 in the principal amount of $250.0 million, at a discount 5.30% due 203 1 ............................. 18,900 18,900 yielding 4.13%, bearing stated interest at 4.125% and maturing in Variable due 2032, 0.26% as of December 31, 2012; March 2042. Proceeds from these issuances of $541.4 million were 0.28% as of December 31, 2011 ............... 14,500 14,500 used to repay short-term debt, which was used to purchase capital Variable due 2032, 0.26% as of December 31, 2012; 0.28% as of December 31,2011 ............... 10,000 10,000 equipment, to redeem bonds, and for working capital and general 4.85% due 2031 ............................. 50,000 50,000 corporate purposes.

5.60% due 2031 ............................. 50,000 50,000 6.00% due 2031 ... . ............. ......... 50,000 50,000 In May 2012, Westar Energy redeemed $150.0 million aggregate 5.00% due 2031 ............................. 50,000 50,000 principal amount of 6.10% first mortgage bonds. Additionally, 373,940 387,258 in March 2012 Westar Energy redeemed $57.2 million aggregate Total long-term debt ............................ 2,824,440 2,495,003 principal amount of 5.00% pollution control bonds and KGE Unamortized debt discount' ...................... (5,169) (3,894) redeemed $13.3 million aggregate principal amount of 5.10%

Long-term debt due within one year ................ pollution control bonds. The bonds were redeemed using short-Long-term debt, net ........................... $2,819,271 $2,491,109 term debt.

Variable Interest Entities Debt Covenants 7.77% due 2012'11 ................... ...... $ - $ 2,583 6.99% due 2014111 ............................ 866 2,094 Some of our debt instruments contain restrictions that require us 5.92 % due 2 019( ...... . . . . . . . . . . . . . . . . . . . .. 17,630 22,748 to maintain leverage ratios as defined in the credit agreements.

5.647% due 2 0 2 1(b) ........ 229,128 248,313 We calculate these ratios in accordance with the agreements and Total long-term debt of variable interest entities ........ 247,624 275,738 they are used to deternine compliance with our various debt Unamortized debt premium"' ...................... 1,061 1,659 covenants. We were in compliance with these covenants as of Long-term debt of variable interest entities December 31, 2012.

due w ithin one year ........................... (25,942) (28,114)

Long-term debt of variable interest entities, net ...... $ 222,743 $ 249,283 VWeamortize debt discounts and premiums to interest expense over the tern of the respective issues.

"' Portionsof our payments related to this debt reduce the principal balances each year until mahtriht.

581

WESTAR ENERGY 1 2012 ANNUAL REPORT Maturities The tax effect of the temporary differences and carryforwards that The principal amounts of our long-term debt maturities as of comprise our deferred tax assets and deferred tax liabilities are December 31, 2012, are as follows. summarized in the following table.

Long-term Long-term As of December 31, 2012 2011 Year Debt Debt of VIEs (InThousands)

(In Thousands)

Deferred tax assets:

20 13 ........................................ $ - $ 25,942 Tax credit carryforward"I ..................... $ 199,160 $ 159,163 20 14 ........................................ 250,000 27,479 Deferred employee benefit costs ............... 191,997 202,687 2 0 15 . . .. . . . . .. . . . . . . .. . . . . .. . . . .. . . . .... . ... - 2 7 ,9 3 3 Net operating loss carryforward"b) .............. 111,869 84,365 20 16 .............................. .......... - 28,309 Deferred state income taxes .................. 55,577 42,209 2017 ........................................ 125,000 26,842 Deferred regulatory gain on sale-leaseback ....... 40,543 42,962 Thereafter .................................... 2,449,440 111,119 Alternative minimum tax carryforward~) ......... 36,471 36,471 Deferred compensation ..................... 28,319 28,286 Total m aturities .......................... ..... $2,824,440 $ 247,624 Accrued liabilities .......................... 15,969 16,912 Disallow ed costs ........................... 12,083 12,717 Capital loss carryforward5 ...................

1 1,50 9 12,5 54 Interest expense on long-term debt was $145.6 million in 2012, Other ................................... 20,897 13,031

$142.6 million in 2011 and $144.1 million in 2010. Interest expense on long-term debt of VIEs was $15.1 million in 2012, $16.8 million Total gross deferred tax assets ............... 724,394 651,357 Less: Valuation allowance& ................... 13,812 13,712 in 2011 and $18.7 million in 2010.

Deferred tax assets ....................... $ 710,582 $ 637,645

10. TAXES Deferred tax liabilities:

Accelerated depreciation .................... $1,255,892 $1,088,727 Income tax expense is comprised of the following components. Deferred employee benefit costs............... 191,997 202,687 Acquisition premium ....................... 179,920 187,934 Year Ended December 31, 2012 2011 2010 Amounts due from customers for (in Thousands) future income taxes, net ................... 169,091 168,804 Deferred state income taxes .................. 50,134 39,512 Income Tax Expense (Benefit): Pension expense tracker ..................... 22,437 14,600 Current income taxes: Debt reacquisition costs ..................... 22,313 21,683 Federal .......................... $ (691) $ (8,575) $ (32,107) Storm costs .............................. 4,373 10,176 State ............................ 579 196 (3,030) Other ................................... 20,9 16 13,59 1 Deferred income taxes:

Federal .......................... 102,960 93,089 102,568 Total deferred tax liabilities ................. $1,917,073 $1,747,714 State .......................... 26,300 21,337 20,305 Net deferred tax liabilities ...................... $1,206,491 $1,110,069 Investment tax credit amortization ....... (3,012) (2,703) (2,704)

Income tax expense ............... $126,136 $103,344 $ 85,032 (,'Based on filed tax returns and aniounts expected to be reported in currentyear tyx returns (December 31, 2012), we had availablefederal general business tax credits of $39.3 million and state inveshnent tayx credits of $159.8 million. The Deferred tax assets and liabilities are reflected on our consolidated federal general business tax credits were primarily generatedfrom affordable balance sheets as follows. housing parbterships in which roe sold the mqjoritl of our interests in 2001.

Tiese tax credits erxpire beginning in 2020 and ending in 2032. Thze state As of December 31, 2012 2011 inveshnrent tax credits exxpire beginning in 2013 and ending in 2028. As we (InThousands) do not expect to realize sufficient state taxable income in 2013, a xaluation Other current liabilities (assets).................... $ 8,654 $ (394) allowance of $1.3 million has been established for the state investment tax Non-current deferred tax liabilities ................. 1,197,837 1,110,463 credits that expire in 2013 (see item (e) below).

('JAs of December 31, 2012, we had a federal net operating loss carryjforoard Deferred tax liabilities ........................... $ 1,206,491 $ 1,110,069 of $276.9 million, which is available to offset federal taxable income. Thie net operatinglosses will eaxire beginningin 2030 and ending in 2032.

"'As of Decelnber31, 2012, we had availablean alternative minimuna tax credit car7ryforrrardof$36.5 million, wohich has an unlimited caMrfor-oardperiod.

f',As of Decenaber 31, 2012, we had an unused capital loss canrrforward of

$29.1 million that is available to offsetfiatrare capital gailas. The capital losses will expire beginningin 2013 and ending in 2016.

'As we do not expect to realize any signrificant capital gains ira the f.thare, we hlave established anvaluation allowance of $11.5 million. In addition, we have established a valuation allowance of $2.3 rrilliorr for certain deferred tax assets related to the write-dowrn of other investirents and state investarcrattax credits.Tire total valuation allowance related to the deferred tax assets roas $13.8 million as of December 31, 2012, and $13.7 million as of December 31, 2011.

In accordance with various orders, we have reduced our prices to reflect the income tax benefits associated with certain accelerated income tax deductions. We believe it is probable that the net future increases in income taxes payable will be recovered from customers when these temporary income tax benefits reverse.

We have recorded a regulatory asset for these amounts. We also have recorded a regulatory liability for our obligation to reduce the prices charged to customers for deferred income taxes recovered 159

WESTAR ENERGY I 2012 ANNUAL REPORT from customers at corporate income tax rates higher than current months. A reconciliation of the beginning and ending amounts of income tax rates. The price reduction will occur as the temporary unrecognized income tax benefits is as follows:

differences resulting in the excess deferred income tax liabilities 2012 2011 2010 reverse. The income tax-related regulatory assets and liabilities (InThousands) as well as unamortized investment tax credits are also temporary Liability for unrecognized income tax differences for which deferred income taxes have been provided. benefits as of January 1 ............... $ 2,483 S 1,888 $ 8,357 The net deferred income tax liability related to these temporary Additions based on tax positions related differences is classified above as amounts due from customers tor to the current year ................... 373 967 608 future income taxes, net. Additions for tax positions of prior years .... - 939 2,323 Reductions for tax positions of prior years ... (1,637) (563) (1,241)

Our effective income tax rates are computed by dividing total Settlem ents .......................... - (748) (8,159) federal and state income taxes by the sum of such taxes and net Liability for unrecognized income tax income. The difference between the effective income tax rates and benefits as of December 31 ............ $ 1,219 $ 2,483 $ 1,888 the federal statutory income tax rates are as follows.

The liability for unrecognized income tax benefits, as disclosed Year Ended December 31, 2012 2011 2010 (in Thousands) above, is net of reductions to deferred tax assets for tax loss and credit carryforwards of $0.3 million, $0.2 million and $1.0 million Statutory federal income tax rate .............. 35.0% 35.0% 35.0%

Effect of: as of December 31, 2012, 2011 and 2010, respectively. The amounts Corporate-owned life insurance policies ....... (4.9) (4.5) (6.1) of unrecognized income tax benefits that, if recognized, would State incom e taxes ....................... 4.3 4.1 3.8 favorably impact our effective income tax rate, were $2.0 million, Production tax credits ..................... (2.4) (2.9) (3.4)

$1.2 million and $1.3 million (net of tax) as of December 31, 2012, Flow through depreciation for plant-related differences ................. 1.4 1.8 2.6 2011 and 2010, respectively.

AFUDC equity ........................... (1.0) (0.6) (0.4)

Amortization of federal investment tax credits .. (0.7) (0.8) (0.9) Interest related to income tax uncertainties is classified as interest Capital loss utilization ..................... (0.3) (0.5) (0.7) expense and accrued interest liability. During 2011 and 2010, Liability for unrecognized income tax benefits... 0.2 - (0.2) we reversed interest expense previously recorded for income Other .. ............... .............. (0.7) (1.2) (0.7) tax uncertainties of $0.2 million and $1.0 million, respectively.

Effective income tax rate .................... 30.9% 30.4% 29.0% As of December 31, 2012 and 2011, we had $0.2 million accrued for interest on our liability related to unrecognized income tax We file income tax returns in the U.S. federal jurisdiction as well as benefits. We accrued no penalties at either December 31, 2012, or various state and foreign jurisdictions. The income tax returns we December 31, 2011.

file will likely be audited by the Internal Revenue Service (IRS) or As of December 31, 2012 and 2011, we had recorded $1.5 million other tax authorities. With few exceptions, the statute of limitations with respect to U.S. federal, state and local, or non-U.S. income for probable assessments of taxes other than income taxes.

tax examinations by tax authorities remains open for tax year 2008 and forward. 11. EMPLOYEE BENEFIT PLANS In the first and second quarters of 2011, the IRS completed its Pension and Post-Retirement Benefit Plans separate examinations of our federal income tax returns filed for We maintain a qualified non-contributory defined benefit pension tax years 2008 and 2009, respectively, without significant changes. plan covering substantially all of our employees. For the majority In May 2012, the IRS commenced an examination of our 2010 of our employees, pension benefits are based on years of service federal income tax return and the amended federal income tax and an employee's compensation during the 60 highest paid returns we filed for years 2007, 2008 and 2009. The examination was consecutive months out of 120 before retirement. Non-union completed in January 2013 and resulted in a refund which is subject employees hired after December 31, 2001, and union employees to formal review and approval by the IRS and the Joint Commanittee hired after December 31, 2011, are covered by the same defined on Taxation of the U.S. Congress. The examination results will not benefit pension plan; however, their benefits are derived from a have a significant impact on our consolidated statements of income cash balance account formula. We also maintain a non-qualified or cash flows. We believe that it is reasonably possible that the Executive Salary Continuation Plan for the benefit of certain administrative reviews will be completed in 2013. current and retired executive officers. With the exception of one current executive officer, we have discontinued accruing any future The liability for unrecognized income tax benefits decreased from benefits under this non-qualified plan.

$2.5 million at December 31, 2011, to $1.2 nmllion at December 31, 2012, The net decrease in the liability for unrecognized income tax The amount we contribute to our pension plan for future periods benefits resulted from the reversal of a liability for unrecognized is not yet known, however, we exp~ect to fund our pension plan income tax benefits related to the capitalization of plant each year at least to a level equal to current year pension expense.

expenditures. The reversal was based on additional IRS guidance We must also meet minimum finding requirements under the regarding deduction and capitalization of expenditures related Employee Retirement Income Security Act, as amended by the to tangible property. We do not expect significant changes in Pension Protection Act. We may contribute additional amounts the liability for unrecognized income tax benefits in the next 12 from time to time as deemed appropriate.

601

WESTAR ENERGY I 2012 ANNUAL REPORT In addition to providing pension benefits, we provide certain post- Pension Benefits Post-retirement Benefits retirement health care and life insurance benefits for substantially As of December 31, 2012 2011 2012 2011 all retired employees. We accrue and recover in our prices the costs (Dollars in Thousands) of post-retirement benefits during an employee's years of service.

Pension Plans With a Projected We fund the portion of net periodic costs for post-retirement Benefit Obligation In Excess benefits included in our prices. of Plan Assets:

Projected benefit obligation .. $ 928,708 S 876,308 $ - $ -

As a co-owner of Wolf Creek, KGE is indirectly responsible for Fair value of plan assets ...... 547,931 481,077 - -

47% of the liabilities and expenses associated with the Wolf Creek Pension Plans With an Accumulated pension and post-retirement benefit plans. See Note 12, "Wolf Benefit Obligation In Excess of Plan Assets:

Creek Employee Benefit Plans,"for information about Wolf Creek's Accumulated benefit benefit plans. obligation .............. $ 806,888 $ 750,263 - -

Fair value of plan assets ...... 547,931 481,077 - -

T1he following tables summarize the status of our pension aid post- Post-retirement Plans With an retirement benefit plans. Accumulated Post-retirement Benefit Obligation In Excess Pension Benefits Post-retirement Benefits of Plan Assets:

As of December 31, 2012 2011 2012 2011 Accumulated post-retirement benefit obligation ........ - - $ 152,564 $ 150,078 (InThousands)

Fair value of plan assets ...... - - 106,793 91,858 Change in Benefit Obligation: Weighted-Average Actuarial Benefit obligation, Assumptions used to beginning of year .......... $ 876,308 $747,460 $ 150,078 $ 137,759 Determine Net Periodic Service cost ................ 19,556 16,076 2,057 1,803 Benefit Obligation:

Interest cost ................ 39,576 40,045 6,298 6,793 Discount rate ............. 4.13% 4.50% 3.99% 4.25%

Plan participants' contributions.. - - 2,987 3,390 Compensation rate increase . . 4.00% 4.00% - -

Benefits paid1 . . . . . . . . . . . . . (60,229) (31,107) (9,799) (10,114)

Actuarial losses (gains) ........ 53,497 94,161 943 5,246 We use a measurement date of December 31 for our pension and Amendments ............... - - - 4,451 Other") . . .. .. . .. .. .. . .. .. .. post-retirement benefit plans. The discount rate Used to determine

- 9,673 - 750 the current year pension obligation and the following year's Benefit obligation, end of year' . . . .. . .. .. .

. $ 928,708 $876,308 $ 152,564 $ 150,078 pension expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a Change in Plan Assets:

Fair value of plan assets, portfolio of h-iigh quality, non-callable corporate bonds that generate beginning of year .......... $ 481,077 $432,233 $ 91,858 $ 86,984 sufficient cash flow to provide for the projected benefit payments of Actual return on plan assets .... 67,328 27,819 10,673 (174) the plan. After the bond portfolio is selected, a single interest rate Employer contributions ........ 56,700 50,000 10,803 10,793 is determined that equates the present value of the plan's projected Plan participants' contributions.. - - 2,845 3,244 Benefits paid") .............. (57,174) (28,975) (9,386) (9,739) benefit payments discounted at this rate with the market value of 51 . . . . . . . . . . . . . . . . . . . .

Other - - - 750 the bonds selected.

Fair value of plan assets, We amortize prior service cost (benefit) on a straight-line basis over end of year ............. $ 547,931 $481,077 $ 106,793 $ 91,858 the average future service of the active employees (plan participants)

Funded status, end of year ....... $(380,777) S(395,231) $ (45,771) $ (58,220) benefiting under the plan at the time of the amendment. We Amounts Recognized inthe amortize the net actuarial gain or loss on a straight-line basis over Balance Sheets Consist of: the average future service of active plan participants benefiting Current liability .............. $ (2,870) $ (2,741) $ (298) $ (115) under the plan without application of an amortization corridor.

Noncurrent liability ........... (377,907) (392,490) (45,473) (58,105)

The KCC allows us to uLIto record a regulatory asset or liability to Net amount recognized ...... S(380,777) $(395,231) $ (45,771) $ (58,220) track the cumulative difference between current year pension and Amounts Recognized in post-retirement benefits expense and the amount of such expense Regulatory Assets Consist of: recognized in setting our prices. We accumulate such regulatory Net actuarial loss ............ $ 383,365 $ 397,691 $ 12,436 $ 18,178 Prior service cost ............. 3,994 4,606 16,467 18,991 asset or liabilit, between general rate reviews and amortize the Transition obligation .......... - - 325 4,236 accumulated amount as part of resetting our base prices. Following Net amount recognized ...... $ 387,359 $402,297 $ 29,228 $ 41,405 is additional information regarding our pension and post-retirement benefit plans.

"'In 2012 certain folrmr emp'loyiees receni'ed a ojie-tiie hlmmnp sum paympent of their pension benefits totaling $26.1 million.

"'"As of December 31, 2011, Other includCs the $9.7 msillion Irclassification of a Con tractual obligation related to the legal settlement wvith a foncr executive officer and $0.8 million of proceeds receized as a result of the Earhtl, Retiree Reinsumance Propranm.

"As of December 31, 2012 and 2011, pension benefits include non-qualified benefit obligations of $30.0 million 171imd$29.4 million, respectiveh., wihich are fiaded by a trust contininiag assets of $43.5 million and $40.2 million, respectivelhl, classified as trading securities as discussed in Notes 4 and 5, "Financialand Derivatic'e Instnrments, Trading Securities, Enmeignmarketing and Risk Managemient"and FinancialhInestuients,"respectively.

161

WESTAR ENERGY 1 2012 ANNUAL REPORT Pension Benefits We estimate that we will amortize the following amounts from Year Ended December 31, 2012 2011 2010 regulatory assets into net periodic cost in 2013.

(Dollars in Thousands) Pension Post-retirement Components of Net Periodic Cost (Benefit): Benefits Benefits Servicecost ........................ $ 19,556 $ 16,076 $ 13,926 (InThousands)

Interest cost ........................ 39,576 40,045 39,391 Actuarial loss ................................... $ 33,914 $ 1,125 Expected return on plan assets .......... (32,283) (31,087) (38,384) Prior service cost ................................ 601 2,524 Amortization of unrecognized: Transition obligation .............................. - 325 Transition obligation, net ............. - - -

Prior service costs .................. 612 1,213 2,729 Total ........................................ $ 34,5 15 $ 3,974 Actuarial loss/(gain), net ............. 32,778 23,659 17,183 Net periodic cost before regulatory We base the expected long-term rate of return on plan assets on adjustment ....................... 60,239 49,906 34,845 historical and projected rates of return for current and planned Regulatory adjustment") ............... (6,523) (22,098) (12,167) asset classes in the plans'investment portfolios. We select assumed Net periodic cost .................... $ 53,716 $ 27,808 $ 22,678 projected rates of return for each asset class after analyzing long-Other Changes in Plan Assets and Benefit tenn historical experience and future expectations of the volatility of Obligations Recognized in Regulatory Assets: the various asset classes. Based on target asset allocations for each Current year actuarial (gain)/loss ....... $ 18,451 $ 97,429 $ 65,690 asset class, we develop an overall expected rate of return for the Amortization of actuarial (loss)/gain .... (32,778) (23,659) (17,183)

Current year prior service cost ......... - 676 portfolios, adjusted for historical and expected experience of active Amortization of prior service costs ...... (612) (1,213) (2,729) portfolio management results compared to benchmark returns and Amortization of transition obligation .... - - - for the effect of expenses paid from plan assets.

Total recognized in regulatory assets .... $ (t4,939) $ 72,557 $ 46,454 For measurement purposes, the assumed annual health care cost Total recognized in net periodic growth rates were as follows.

cost and regulatory assets .......... $ 38,777 $100,365 $ 69,132 As of December 31, 2012 2011 Weighted-Average Actuarial Assumptions used to Determine Net Periodic Cost (Benefit): Health care cost trend rate assumed for next year ............ 8.0% 8.0%

Discount rate ..................... 4.50% 5.35% 5.95% Rate to which the cost trend rate isassumed to decline Expected long-term return on plan assets 6.50% 6.50% 8.25% (the ultimate trend rate) .............................. 5.0% 5.0%

Compensation rate increase .......... 4.00% 4.00% 4.00% Year that the rate reaches the ultimate trend rate ............ 2019 2018 Post-retirement Benefits The health care cost trend rate affects the projected benefit Year Ended December 31, 2012 2011 2010 obligation. A 1% change in assumed health care cost growth rates (Dollars in Thousands) would have effects shown in the following table.

Components of Net Periodic Cost (Benefit): One-Percentage- One-Percentage-Service cost ........................ $ 2,057 $ 1,803 $ 1,526 Point Increase Point Decrease Interest cost ........................ 6,298 6,793 7,083 (InThousands)

Expected return on plan assets .......... (5,491) (5,002) (5,197)

Effect on total of service and interest cost ............ $ 67 $ (64)

Amortization of unrecognized:

Effect on post-retirement benefit obligation ........... 1,489 (1,384)

Transition obligation, net ............. 3,912 3,911 3,912 Prior service costs .................. 2,524 2,524 2,154 Actuarial loss/(gain), net ............. 1,503 702 321 Plan Assets Net periodic cost before regulatory We manage pension and post-retirement benefit plan assets in a adjustment ....................... 10,803 10,731 9,799 prudent manner with regard to preserving principal while providing Regulatory adjustment(,) 23 1,344 1,868 reasonable returns. We have adopted a long-tern investment Net periodic cost .................... $ 10,826 $ 12,075 $ 11,667 horizon such that the chances and duration of investment losses are Other Changes in Plan Assets and Benefit carefully weighed against the long-term potential for appreciation Obligations Recognized in Regulatory Assets: of assets. Part of our strategy includes managing interest rate Current year actuarial (gain)/loss ....... $ (4,239) $ 10,421 $ 3,298 sensitivity of plan assets relative to the associated liabilities. The Amortization of actuarial (loss)/gain . .. (1,503) (702) (321) primary objective of the pension plan is to provide a source of Current year prior service cost ........ - 4,451 -

Amortization of prior service costs ..... (2,524) (2,524) (2,154) retirement income for its participants and beneficiaries, and the Amortization of transition obligation... (3,912) (3,911) (3,912) primary financial objective of the plan is to improve its funded Total recognized in regulatory assets .... $ (12,178) $ 7,735 $ (3,089) status. The primary objective of the post-retirement benefit plan is growth in assets and preservation of principal, while minimizing Total recognized in net periodic cost interim volatility, to meet anticipated claims of plan participants.

and regulatory assets .............. $ (1,352) $ 19,810 $ 8,578 We delegate the managemnent of our pension and post-retirement Weighted-Average Actuarial Assumptions benefit plan assets to independent investment advisors who hire used to Determine Net Periodic Cost (Benefit):

Discount rate ..................... 4.25% 5.00% 5.65% and dismiss investment managers based upon various factors.

Expected long-term return on plan assets 6.00% 6.00% 7.75% The investment advisors strive to diversify investments across Compensation rate increase .......... - - - asset classes, sectors and manager styles to minimize the risk of The regulatory adjjushnent represents the difference between cu-rent p7eriod T large losses, based upon objectives and risk tolerance specified Pension or post-retirement benefit e.xpense and the amount ofsuchiiexense by management, which include allowable and/or prohibited recognized in setting our prices. investment types. We measure and monitor investment risk on an ongoing basis through quarterly investment portfolio reviews and annual liability measurements.

621

WESTAR ENERGY I 2012 ANNUAL REPORT As noted above, we have established certain prohibited investments market information to measure the fair value of the investments.

for our pension and post-retirement benefit plans. Such prohibited The fair value of private equity investments is measured by investments include loans to the company or its officers and utilizing both market- and income-based models, public company directors as well as investments in the company's debt or equity comparables, at cost or at the value derived from subsequent securities, except as may occur indirectly through investments in financings. Adjustments are made when actual performance diversified mutual funds. In addition, to reduce concentration of differs from expected performance; when market, economic or risk, the pension plan will not invest in any fund that holds more company-specific conditions change; and when other news or than 25% of its total assets to be invested in the securities of one events have a material impact on the security. To measure the fair or more issuers conducting their principal business activities in value of real estate securities we use a combination of market- and the same industry. This restriction does not apply to investments income-based models utilizing market discount rates, projected in securities issued or guaranteed by the U.S. government or cash flows and the estimated value into perpetuity. Alternative its agencies. funds are measured at fair value using net asset values as reported by the alternative fund managers. Since the underlying assets in The target allocations for our pension plan assets are about 44% alternative funds vary widely various methods are required, often to debt securities, 42% to equity securities and the remaining 14%

utilizing significant management judgment.

to other investments such as real estate securities, hedge funds and private equity investments. Our investments in equity include The following table provides the fair value of our pension plan investment funds with underlying investments in domestic and assets and the corresponding level of hierarchy as of December 31, foreign large-, mid- and small-cap companies, derivatives related 2012 and 2011.

to such holdings, private equity investments including late-stage As of December 31, 2012 Level 1 Level 2 Level 3 Total venture investments and other investments. Our investments in (In Thousands) debt include core and high-yield bonds. Core bonds are comprised Assets:

of investment funds with underlying investments in investment Domestic equity ............. $ - $129,501 $ 18,493 $147,994 grade debt securities of corporate entities, obligations of U.S. and International equity ........... - 67,743 - 67,743 foreign governments and their agencies, and other debt securities. Core bonds ................. - 178,784 - 178,784 High-yield bonds ............. -- 19,070 - 19,070 High-yield bonds include investment funds with underlying 14,276 - 14,276 Emerging market bonds ........ -

investments in non-investment grade debt securities of corporate Combination debt/equity fund ... - 50,750 - 50,750 entities, obligations of foreign governments and their agencies, Real estate securities ........... - - 20,927 20,927 private debt securities and other debt securities. Real estate Alternative funds ............. -- - 45,535 45,535 Cash equivalents ............. . - 2,852 - 2,852 securities consist primarily of funds invested in core real estate throughout the U.S. while alternative funds invest in wide ranging Total Assets Measured at Fair Value. $ - $462,976 $ 84,955 $547,931 investments including equity and debt securities of domestic and As of December 31, 2011 foreign corporations, debt securities issued by U.S. and foreign Assets:

governments and their agencies, structured debt, warrants, Domestic equity .............. $ - $121,364 $ 15,375 $136,739 exchange-traded funds, derivative instruments, private investment International equity ........... - 53,943 - 53,943 funds and other investments. Core bonds ................. - 142,700 - 142,700 High-yield bonds ............. -- 38,380 - 38,380 The target allocations for our post-retirement benefit plan Combination debt/equity fund ... - 47,151 - 47,151 Real estate securities ........... - - 18,848 18,848 assets are 65% to equity securities and 35% to debt securities. Alternative funds ............. -- - 40,716 40,716 Our investments in equity securities include investment funds Cash equivalents ............. -- 2,600 - 2,600 with underlying investments primarily in domestic and foreign Total Assets Measured at Fair Value.. $ - $406,138 $ 74,939 $481,077 large-, mid- and small-cap comparies. Our investments in debt securities include a core bond fund with underlying investments in The following table provides a reconciliation of pension plan assets investment grade debt securities of domestic and foreign corporate measured at fair value using significant level 3 inputs for the years entities, obligations of U.S. and foreign governments and their ended December 31, 2012 and 2011.

agencies, private placement securities and other investments.

Domestic High-yield Real Estate Alternative Sinmilar to other assets measured at fair value, GAAP establishes Equity Bonds Securities Funds Total a hierarchal framework for disclosing the transparency of the (InThousands) inputs utilized in measuring pension and post-retirement benefit Balance as of plan assets at fair value. From time to time, the pension and post- December 31, 2011 ..... $15,375 $ $18,848 $40,716 $74,939 retirement benefits trusts may buy and sell investments resulting in Actual gain (loss) on plan assets:

changes within the hierarchy. See Note 4,"Financial and Derivative Relating to assets still held at the reporting date... (25) 2,296 4,819 7,090 Instruments, Trading Securities, Energy Marketing and Risk Relating to assets sold Management,"for a description of the hierarchal framework. during the period ..... 53 (27) - 26 Purchases, issuances and All level 2 pension investments are held in investment funds that settlements, net ...... 3,090 - (190) - 2,900 are measured at fair value using daily net asset values as reported Balance as of by the trustee, except for $35.6 million as of December 31, 2012, December 31, 2012 ..... $18,493 $ - $20,927 $45,535 $84,955 invested directly' in long-term U.S. Treasury securities. We also maintain certain level 3 investments in private equity, real estate securities and alternative funds that require significant unobservable 163

WESTAR ENERGY 1 2012 ANNUAL REPORT Domestic High-yield Real Estate Alternative as a means to attract, retain and motivate employees and directors.

Equity Bonds Securities Funds Total Under the LTISA Plan, we may grant awards in the form of (In Thousands) stock options, dividend equivalents, share appreciation rights, Balance as of RSUs, performance shares and performance share units to plan December 31, 2010 ..... $11,575 $ 1,200 $16,411 $25,764 $54,950 Actual gain (loss) on plan assets: participants. In May 2011, Westar Energy shareholders approved Relating to assets still held an increase in the number of shares of common stock that may at the reporting date ... 1,910 - 2,652 (48) 4,514 be granted under the LTISA Plan to 8.25 million shares from Relating to assets sold 5.0 million shares.As of December 31,2012, awards of approximately during the period ..... - - (49) - (49) 4.8 million shares of common stock had been made under the plan.

Purchases, issuances and settlements, net ........ 1,890 (1,200) (166) 15,000 15,524 All stock-based compensation is measured at the grant date based Balance as of on the fair value of the award and is recognized as an expense in December31, 2011 ..... $15,375 $ - $18,848 $40,716 $74,939 the consolidated statement of income over the requisite service period. The requisite service periods range from one to ten years.

The following table provides the fair value of our post-retirement The table below shows compensation expense and income tax benefit plan assets and the corresponding level of hierarchy as of benefits related to stock-based compensation arrangements that December 31, 2012 and 2011. are included in our net income.

As of December 31, 2012 Level 1 Level 2 Level 3 Total Year Ended December 31, 2012 2011 2010 (In Thousands) (in Thousands)

Assets:

Compensation expense .................... $ 7,203 $ 8,367 $11,321 Domestic equity ............. $ - $ 55,441 $ - $ 55,441 Income tax benefits related to stock-based International equity ..... .... - 14,037 - 14,037 compensation arrangements .............. 2,849 3,309 4,481 Core bonds .................. - 36,738 - 36,738 Cash equivalents .............. - 577 - 577 We use RSU awards for our stock-based compensation awards.

Total Assets Measured at Fair Value.. $ - $106,793 $ - $106,793 RSU awards are grants that entitle the holder to receive shares of As of December 31, 2011 common stock as the awards vest. These RSU awards are defined Assets: as nonvested shares and do not include restrictions once the Domestic equity ............. $ - $ 47,411 $ - $ 47,411 awards have vested. In 2011, outstanding RSUs with only service International equity ...... .... - 11,500 - 11,500 Core bonds .................. - 32,192 requirements previously awarded to our former chief executive

- 32,192 Cash equivalents .............. - 755 - 755 officer that were subject to forfeiture were modified to provide for the vesting upon his retirement in July 2011 of a prorated number Total Assets Measured at Fair Value .. $ - $ 91,858 $ - $ 91,858 of the RSUs based on the number of days from the grant date of the Cash Flows RSUs to his retirement date. In addition, outstanding RSUs with The following table shows the expected cash flows for our pension performance measures previously awarded to our former chief and post-retirement benefit plans for future years. executive officer were modified to provide for the vesting on the scheduled vesting date, subject to the satisfaction of the applicable Pension Benefits Post-retirement Benefits performance criteria, of a prorated number of the target RSUs based on the number of days from the grant date of the RSUs to his (From) (From)

To/(From) Company To/(From) Company retirement date. We recorded compensation expense of $2.8 million Expected Cash Flows Trust Assets Trust Assets in 2011 related to these modifications.

(In Millions)

Expected contributions: RSU awards with only service requirements vest solely upon the 2013 .................... $ 30.0 $ 6.0 passage of time. We measure the fair value of these RSU awards Expected benefit payments: based on the market price of the underlying common stock as 2013 .................... $(31.3) $(2.9) $ (7.9) $(0.3) 2014 .................... (33.3) (2.8) (8.3) (0.3) of the grant date. RSU awards with only service conditions that 2015 .................... (35.3) (2.8) (8.8) (0.3) have a graded vesting schedule are recognized as an expense in 20 16 .................... (38.0) (2.8 ) (9.1) (0.3) the consolidated statement of income on a straight-line basis over 2017 .................... (41.1) (2.8 ) (9.5) (0.3) the requisite service period for the entire award. Nonforfeitable 2018-2022 ............... (247.1) (13.0) (49.6) (1.2) dividend equivalents, or the rights to receive cash equal to the value of dividends paid on Westar Energy's common stock, are paid on Savings Plans these RSUs during the vesting period.

We maintain a qualified 401(k) savings plan in which most of our employees participate. We match employees' contributions in cash RSU awards with performance measures vest upon expiration of up to specified maximum limits. Our contributions to the plans the award term. The number of shares of common stock awarded are deposited with a trustee and invested at the direction of plan upon vesting will vary from 0% to 200% of the RSU award, with participants into one or more of the investment alternatives we performance tied to our total shareholder return relative to the total provide under the plan. Our contributions totaled $7.1 million in shareholder return of our peer group. We measure the fair value of 2012, $7.0 million in 2011 and $7.4 million in 2010. these RSU awards using a Monte Carlo simulation technique that Uses the closing stock price at the valuation date and incorporates Stock-Based Compensation Plans assumptions for inputs of the expected volatility and risk-free We have a long-term incentive and share award plan (LTISA Plan), interest rates. Expected volatility is based on historical volatility which is a stock-based compensation plan in which employees and over three years using daily stock price observations. The risk-free directors are eligible for awards. The LTISA Plan was implemented interest rate is based on treasury constant maturityyields as reported 641

WESTAR ENERGY I 2012 ANNUAL REPORT by the Federal Reserve and the length of the performance period. of current cash compensation. Although this plan was discontinued For the 2012 valuation, inputs for expected volatility ranged from in 2001, dividends will continue to be paid to plan participants on 176% to 33.6% and the risk-free interest rate was approximately their outstanding plan balance until distribution. Plan participants 0.4%. For the 2011 valuation, inputs for expected volatility and were awarded 666 shares of common stock for dividends in 2012, risk-free interest rates ranged from 24.5% to 28.5% and 0.1% to 4,757 shares in 2011 and 6,627 shares in 2010. Participants received 1.3%, respectively. For these RSU awards, dividend equivalents common stock distributions of 1,461 shares in 2012, 67,426 shares accumulate over the vesting period and are paid in cash based on in 2011 and 1,198 shares in 2010.

the number of shares of common stock awarded upon vesting.

Income tax benefits resulting from income tax deductions in During the years ended December 31, 2012, 2011 and 2010, our RSU excess of the related compensation cost recognized in the financial activity for awards with only service requirements was as follows: statements is classified as cash flows from financing activities in the As of December 31, 2012 2011 consolidated statements of cash flows.

2010 Weighted- Weighted- Weighted-Average Average Average 12. WOLF CREEK EMPLOYEE BENEFIT PLANS Grant Date Grant Date Grant Date Shares Fair Value Shares Fair Value Shares Fair Value Pension and Post-retirement Benefit Plans (Shares in Thousands)

Nonvested balance, As a co-owner of Wolf Creek, KGE is indirectly responsible for beginning of year... 368.5 $23.83 600.4 $21.50 368.8 $21.98 47% of the liabilities and expenses associated with the Wolf Creek Granted ............ 131.0 27.82 284.1 26.30 366.4 22.14 pension and post-retirement benefit plans. KGE accrues its 47%

Vested ............. (127.8) 23.34 (187.3) 23.50 (118.1) 24.81 share of Wolf Creek's cost of pension and post-retirement benefits Forfeited ........... (20.6) 24.40 (328.7) 24.37 (16.7) 22.32 during the years an employee provides service. The following Nonvested balance, tables summarize the status of KGE's 47% share of the Wolf Creek end of year ........ 351.1 25.47 368.5 23.83 600.4 21.50 pension and post-retirement benefit plans.

Total unrecognized compensation cost related to RSU awards Pension Benefits Post-retirement Benefits with only service requirements was $4.2 million as of December 31, As of December 31, 2012 2011 2012 2011 2012. We expect to recognize these costs over a remaining (In Thousands) weighted-average period of 1.7 years. The total fair value of Change in Benefit Obligation:

RSUs with only service requirements that vested during the Benefit obligation, beginning of year .......... $ 161,396 $131,460 $ 10,129 $ 10,144 years ended December 31, 2012, 2011 and 2010, was $3.7 nillion, Service cost ................ 6,062 4,957 191 165

$4.8 million and $2.7 million, respectively. Interest cost ................ 7,537 7,370 411 458 Plan participants' contributions.. - - 608 614 During the years ended December 31, 2012, 2011 and 2010, our Benefits paid '1 . .. .. . . . . . . . . .

(8,569) (3,033) (988) (979)

RSU activity for awards with performance measures was as follows: Actuarial losses (gains) ........ 9,815 20,642 669 (360)

Amendments ............... 650 - - -

As of December 31, 2012 2011 2010 Othe 51O. . . . . . . . . . . . . . ... . ..

- - - 87 Weighted- Weighted- Weighted-Average Average Average Benefit obligation, Grant Date Grant Date Grant Date end of year ............. $ 176,891 $161,396 $ 11,020 $ 10,129 Shares Fair Value Shares Fair Value Shares Fair Value (Shares in Thousands)

Change in Plan Assets:

Fair value of plan assets, Nonvested balance, beginning of year .......... $ 80,727 $ 76,086 $ 4 $ -

beginning of year... 324.2 $28.31 348.4 $24.98 $ - Actual return on plan assets .... 11,764 (2,578) - -

Granted ............ 122.3 28.84 244.4 31.26 366.0 24.96 Employer contributions ........ 13,887 10,009 389 369 Vested ............. (88.2) 25.46 (119.5) 24.12 (4.5) 23.32 Plan participants' contributions.. - - 608 614 Forfeited ........... (18.2) 29.00 (149.1) 28.72 (13.1) 24.99 Benefits paid ............... (8,327) (2,790) (988) (979)

Nonvested balance, Fair value of plan assets, end of year ........ 340.1 29.20 324.2 28.31 348.4 24.98 end of year ........... $ 98,051 $ 80,727 $ 13 $ 4 Funded status, end of year ....... $ (78,840) $ (80,669) S (11,007) $ (10,125)

As of December 31, 2012 and 2011, total unrecognized compensa-tion cost related to RSU awards with performance measures was Amounts Recognized inthe Balance Sheets Consist of:

$3.5 million and $3.3 million, respectively. We expect to recognize Currentliability .............. $ (243) $ (243) S (625) $ (609) these costs over a remaining weighted-average period of 1.7 years. Noncurrent liability ........... (78,597) (80,426) (10,382) (9,516)

The total fair value of RSUs with performance measures that Net amount recognized .... $ (78,840) $ (80,669) $ (11,007) S (10,125) vested during the years ended December 31, 2012 and 2011, was Amounts Recognized in

$3.6 million. No performance RSUs vested in 2010. Regulatory Assets Consist of:

Net actuarial loss ........... $ 64,535 $ 65,273 $ 3,643 $ 3,208 Stock options granted between 1998 and 2001 are completely Prior service cost ............. 675 31 - -

vested and have expired. There were no options exercised and Transition obligation .......... - - 1 58 all remaining options were forfeited during the year ended Net amount recognized ...... $ 65,210 $ 65,304 $ 3,644 $ 3,266 December 31, 2010. We currently have no plans to issue new stock option awards. In I 2012 certain former emiployees received a one-time hnnp suln paymnent cit their pension benefits. Our s/hare of the paynieit totaled $4.9 mnillion.

Another component of the LTISA Plan is the Executive Stock t' Includes proceeds received as a result of the Early Retiree Reinsira-nce Prop-ani.

for Compensation program Linder which, in the past, eligible employees were entitled to receive deferred common stock in lieu 165

WESTAR ENERGY 1 2012 ANNUAL REPORT Pension Benefits Post-retirement Benefits Pension Benefits As of December 31, 2012 2011 2012 2011 Year Ended December 31, 2012 2011 2010 (Dollars InThousands) (Dollars rnThousands)

Pension Plans With a Projected Components of Net Periodic Cost (Benefit):

Benefit Obligation In Excess Service cost ........................ $ 6,062 $ 4,957 $ 4,144 of Plan Assets: Interest cost ........................ 7,537 7,370 6,941 Projected benefit obligation .. $ 176,891 $161,396 - $ - Expected return on plan assets .......... (6,577) (5,904) (5,453)

Fair value of plan assets ...... 98,051 80,727 - Amortization of unrecognized:

Pension Plans With an Accumulated Transition obligation, net ............. - 52 57 Benefit Obligation InExcess Prior service costs .................. 6 16 29 of Plan Assets: Actuarial loss, net .................. 5,366 3,586 2,636 Accumulated benefit Net periodic cost before regulatory obligation .............. $ 141,722 $ 128,633 $ - $ -

adjustment ....................... 12,394 10,077 8,354 Fair value of plan assets ...... 98,051 80,727 - -

Regulatory adjustment") ............... (1,776) (2,546) (1,498)

Post-retirement Plans With an Accumulated Post-retirement Net periodic cost .................... $ 10,618 $ 7,531 $ 6,856 Benefit Obligation In Excess of Plan Assets: Other Changes in Plan Assets and Accumulated post-retirement Benefit Obligations Recognized benefit obligation ........ $ - $ - $ 11,020 $ 10,129 in Regulatory Assets:

Fair value of plan assets ...... - - 13 4 Current year actuarial (gain)/loss ....... $ 4,629 $ 29,124 $ 7,514 Weighted-Average Actuarial Amortization of actuarial loss ......... (5,366) (3,586) (2,636)

Current year prior service cost ......... 650 - -

Assumptions used to Determine Net Periodic Benefit Obligation: Amortization of prior service cost ...... (6) (16) (29)

Discount rate ............. 4.16% 4.55% 3.78% 4.10% Amortization of transition obligation .... - (52) (57)

Compensation rate increase . 4.00% 4.00% - - Total recognized in regulatory assets .... $ (93) $ 25,470 $ 4,792 Total recognized in net periodic cost Wolf Creek uses a measurement date of December 31 for its and regulatory assets .............. $ 10,525 $ 33,001 $ 11,648 pension and post-retirement benefit plans. The discount rate Weighted-Average Actuarial Assumptions used to determine the current year pension obligation and the used to Determine Net Periodic Cost:

following year's pension expense is based on a bond selection- Discount rate ..................... 4.55% 5.45% 6.05%

settlement portfolio approach. This approach develops a discount Expected long-term return on plan assets 7.50% 7.50% 8.00%

rate by selecting a portfolio of high quality, non-caliable corporate Compensation rate increase .......... 4.00% 4.00% 4.00%

bonds that generate sufficient cash flow to provide for the projected Post-retirement Benefits benefit payments of the plan. After the bond portfolio is selected, a Year Ended December 31, 2012 2011 2010 single interest rate is detennined that equates the present value of (Dollars in Thousands) the plan's projected benefit payments discounted at this rate with the market value of the bonds selected. Components of Net Periodic Cost (Benefit):

Service cost ..................... $ 191 $ 165 $ 179 The prior service cost (benefit) is amortized on a straight-line Interest cost ........................ 411 458 519 Expected return on plan assets .......... - - -

basis over the average future service of the active employees Amortization of unrecognized: ..........

(plan participants) benefiting under the plan at the time of the Transition obligation, net ............. 57 58 58 amendment.The net actuarial gain or loss is amortized on a straight- Prior service costs .................. - - -

line basis over the average future service of active plan participants Actuarial loss, net .................. 234 227 276 benefiting under the plan without application of an amortization Net periodic cost before regulatory corridor. Following is additional infonnation regarding KGE's adjustment ....................... 893 908 1,032 Regulatory adjustment',' ............... - - -

47% share of the Wolf Creek pension and other post-retirement benefit plans. Net periodic cost .................... $ 893 $ 908 $ 1,032 Other Changes in Plan Assets and Benefit Obligations Recognized in Regulatory Assets:

Current year actuarial (gain)/loss ....... $ 669 $ (360) $ 363 Amortization of actuarial loss ......... (234) (227) (276)

Current year prior service cost ......... - - -

Amortization of prior service cost ...... - - -

Amortization of transition obligation .... (57) (58) (58)

Total recognized in regulatory assets .... $ 378 $ (645) $ 29 Total recognized in net periodic cost and regulatory assets .............. $ 1,271 $ 263 $ 1,061 Weighted-Average Actuarial Assumptions used to Determine Net Periodic Cost:

Discount rate ...................... 4.10% 4.90% 5.50%

Expected long-term return on plan assets. - - -

Compensation rate increase ........... - - -

'"*The rtýulatoql adjustment ieprescnts the diffetrnce betueen current period pension or post-retirinent benefit Ce7(ense and the amount of such expense recognized in setting our prices.

661

WESTAR ENERGY I 2012 ANNUAL REPORT We estimate that we will amortize the following amounts from The target allocations for Wolf Creek's pension plan assets are regulatory assets into net periodic cost in 2013. 31% to international equity securities, 25% to domestic equity Pension Post-retirement securities, 25% to debt securities, 10% to real estate securities, Benefits Benefits 5% to commodity investments and 4% to other investments. The (in Thousands) investments in both international and domestic equity include Actuarial loss ................................... $ 5,421 $ 264 investments in large-, mid- and small-cap companies, private Prior service cost ................................ 58 - equity funds and investment funds with underlying investments Transition obligation .............................. - 1 similar to those previously mentioned. The investments in debt Total ........................................ $ 5,4 79 $ 265 include core and high-yield bonds. Core bonds include funds invested in investment grade debt securities of corporate entities, The expected long-term rate of return on plan assets is based on obligations of U.S. and foreign governments and their agencies, historical and projected rates of return for current and planned asset and private debt securities. High-yield bonds include a fund with classes in the plans' investment portfolios. Assumed projected rates underlying investments in non-investment grade debt securities of of return for each asset class were selected after analyzing long- corporate entities, private placements and bank debt. Real estate term historical experience and future expectations of the volatility securities include funds invested in commercial and residential of the various asset classes. Based on target asset allocations for real estate properties while cormmodity investments include funds each asset class, the overall expected rate of return for the portfolios invested in commodity-related instruments.

was developed, adjusted for historical and expected experience All of Wolf Creek's pension plan assets are recorded at fair value of active portfolio management results compared to benchmark using daily net asset values as reported by the trustee. However, returns and for the effect of expenses paid from plan assets.

level 3 investments in real estate funds and alternative funds are For measurement purposes, the assumed annual health care cost invested in underlying investments that are illiquid and require growth rates were as follows. significant judgment when measuring them at fair value using As of December 31, market- and income-based models. Significant unobservable 2012 2011 inputs for underlying real estate investments include estimated Health care cost trend rate assumed for next year ............ 8.0% 8.0%

Rate to which the cost trend rate is assumed to decline market discount rates, projected cash flows and estimated value into (the ultim ate trend rate) .............................. 5.0% 5.0% perpetuity. Alternative funds invest in a wide range of investments Year that the rate reaches the ultimate trend rate ............ 2019 2018 typically with low correlations to traditional investments.

The health care cost trend rate affects the projected benefit Similar to other assets measured at fair value, GAAP establishes a obligation. A 1% change in assumed health care cost growth rates hierarchal framework for disclosing the transparency of the inputs would have effects shown in the following table. utilized in measuring pension and post-retirement benefit plan assets at fair value. From time to time, the Wolf Creek pension One-Percentage- One-Percentage- trust may buy and sell investments resulting in changes within Point Increase Point Decrease (InThousands) the hierarchy. See Note 4, "Financial and Derivative Instruments, Effect on total of service and interest cost ........... $ (10) $ 10 Trading Securities, Energy Marketing and Risk Management,'for a Effect on post-retirement benefit obligation .......... (129) 128 description of the hierarchal framework.

The following table provides the fair value of KGE's 47% share of Plan Assets Wolf Creek's pension plan assets and the corresponding level of In 2012 Wolf Creek changed its investment advisor resulting in the hierarchy as of December 31, 2012 and 2011.

sale of its then existing levels 1, 2 and 3 investments and the purchase of other level 2 and 3 investments. Its pension and post-retirement As of December 31, 2012 Level 1 Level 2 Level 3 Total plan investment strategy is to manage assets in a prudent manner (in Thousands) with regard to preserving principal while providing reasonable Assets:

Domestic equity ............. $ - $ 24,305 $ - $ 24,305 returns. It has adopted a long-term investment horizon such International equity ........... - 30,484 - 30,484 that the chances and duration of investment losses are carefullv Core bonds ................. - 24,763 - 24,763 weighed against the long-term potential for appreciation of assets. Real estate securities ........... . - 4,972 4,541 9,513 Part of its strategy includes managing interest rate sensitivity of plan Commodities ................ - 4,789 - 4,789 Alternative investments ........ - - 3,900 3,900 assets relative to the associated liabilities. The primnary objective Cash equivalents ............. . - 297 - 297 of the pension plan is to provide a source of retirement income Total Assets Measured for its participants and beneficiaries, and the primary financial at Fair Value ................. $ - $ 89,610 $ 8,441 $ 98,051 objective of the plan is to improve its funded status. The primary objective of the post-retirement benefit plan is growth in assets As of December 31, 2011 and preservation of principal, while minimizing interim volatility, to Assets:

Domestic equity .............. $ 30,753 $ - $ - $ 30,753 meet anticipated claims of plan participants. Wolf Creek delegates International equity ........... 9,953 8,070 - 18,023 the management of its pension and post-retirement benefit plan Core bonds ................. - 17,877 - 17,877 assets to independent investment advisors who hire and dismiss High-yield bonds ............. 4,102 - - 4,102 investment managers based upon various factors. The investment Real estate securities ........... . - - 3,630 3,630 Commodities ................ - 4,377 - 4,377 advisors strive to diversify investments across asset classes, sectors Cash equivalents ............. . - 1,965 - 1,965 and manager styles to minimize the risk of large losses, based upon objectives and risk tolerance specified by Wolf Creek, which include Total Assets Measured at Fair Value ................. $ 44,808 $ 32,289 $ 3,630 $ 80,727 allowable and/or prohibited investment types. It measures and monitors investment risk on an ongoing basis through quarterly 167 investment portfolio reviews and annual liability measurements.

WESTAR ENERGY 1 2012 ANNUAL REPORT The following table provides a reconciliation of KGE's 47% share The yearly detail of the aggregate amnount of required payments as of Wolf Creek's pension plan assets measured at fair value using of December 31, 2012, was as follows.

siglificant level 3 inputs for the years ended December 31, 2012 Committed Amount and 2011.

(InThousands)

Real Estate Alternative 2 0 13 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . .. .. .. .. .. .. . 15 9,54 6 Securities Investments Total 20 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. . ... . .. .. .. . 72,5 73 (In Thousands) 20 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. . ... . .. .. .. . 2 9,2 7 1 Balance as of December 31, 2011 .......... $ 3,630 $ - $ 3,630 Thereafter . . .. . . .. . . .. . . . .. . .. . . . .. . . .. . . . .. .. . . .. . . .. . . .. . . 16 ,72 7 Actual gain (loss) on plan assets: Total am ount com m itted ..................................... $278,117 Relating to assets still held at the reporting date ...................... (411) 23 (388)

Relating to assets sold during the period .... 755 - 755 Federal Clean Air Act Purchases, issuances and settlements, net .... 567 3,877 4,444 We must comply with the federal Clean Air Act, state laws and Balance as of December 31, 2012 .......... $ 4,541 $ 3,900 $ 8,441 implementing federal and state regulations that impose, among Balance as of December 31, 2010 .......... . 3,160 $ - $ 3,160 other things, limitations on emissions generated from our operations, Actual gain (loss) on plan assets: including sulfur dioxide (SO,), particulate matter (PM), nitrogen Relating to assets still held at the oxides (NOx), carbon monoxide (CO), mercury and acid gases.

reporting date ...................... 500 - 500 Relating to assets sold during the period .... 2 - 2 Emissions from our generating facilities, including PM, SO, and Purchases, issuances and settlements, net... (32) - (32) NOx, have been determined by regulation to reduce visibility by Balance as of December 31, 2011 .......... $ 3,630 $ - $ 3,630 causing or contributing to regional haze. Under federal laws, such as the Clean AirVisibility Rule, and pursuant to an agreement with Cash Flows the Kansas Department of Health and Environment (KDHE) and the Environmental Protection Agency (EPA), we are required to The following table shows our expected cash flows for KGE's 47%

install, operate and maintain controls to reduce emissions found to share of Wolf Creek's pension and post-retirement benefit plans for cause or contribute to regional haze.

future years.

Pension Benefits Post-retirement Benefits Under the federal Clean Air Act, the EPA sets National Ambient Air Quality Standards (NAAQS) for certain emissions considered (From) (From)

To/(From) Company To/(From) Company harmful to public health and the environment, including PM, Expected Cash Flows Trust Assets Trust Assets NOx, CO and SO 2, which result from fossil fuel combustion. Areas (InMillions) meeting the NAAQS are designated attainment areas while those Expected contributions:

that do not meet the NAAQS are considered nonattainment areas.

20 13 .................... $ 9.4 $ 0.6 Expected benefit payments: Each state Must develop a plan to bring nonattainment areas into 2013 .................... $ (3.7) $(0.2) $ (0.6) $ - compliance with the NAAQS. NAAQS must be reviewed by the 2014 .................... (4.3) (0.2) (0.7) - EPA at five-year intervals. KDHE proposed to designate portions 2015 .................... (5.0) (0.2) (0.7) -

(0.2) (0.8) -

of the Kansas City area nonattainment for the eight-hour ozone 2016 .................... (5.8) 2017 .................... (6.7) (0.2) (0.8) - standard, which has the potential to impact our operations.The EPA 2018-2022 ............... (46.9) (0.9) (4.5) - has not acted on KDHE's proposed designation of the Kansas City area and it is uncertain when, or if, such a designation might occur.

Savings Plan The Wichita area also exceeded the eight-hotu ozone standard Wolf Creek maintains a qualified 401(k) savings plan in which most and could be designated nonattainment in the future potentially of its employees participate. They match employees' contributions impacting our operations.

in cash up to specified maximum limits. Wolf Creek's contributions In December 2012, the EPA strengthened an existing NAAQS for to the plan are deposited with a trustee and invested at the direction PM. The EPA anticipates making initial attainment/nonattainment of plan participants into one or more of the investment alternatives designations under this rule by the end of 2014. We are currently provided under the plan. KGE's portion of the expense associated evaluating the rule, however, we cannot at this time predict the with Wolf Creek's matching contributions was $1.3 million in 2012, impact it may have on our operations or consolidated financial

$1.3 million in 2011 and $1.1 million in 2010.

results, but it could be material.

13. COMMITMENTS AND CONTINGENCIES In 2010, the EPA strengthened the NAAQS for both NOx and SO_

We continue to communicate with our regulators regarding these Purchase Orders and Contracts standards and are currently evaluating what impact this could As part of our ongoing operations and capital expenditure program, have on our operations. If we are required to install additional we have purchase orders and contracts, excluding fuel and equipment to control emissions at our facilities, the revised NAAQS transmission, which are discussed below under"-Fuel, Purchased could have a material impact on our operations and consolidated Power and Transmission Commitments,"that had an unexpended financial results.

balance of approximately $588.3 million as of December 31, 2012, Environmental Projects of which $278.1 million had been committed. These commitments We will continue to make significant capital and operating relate to purchase obligations issued and outstanding at year-end.

expenditures at our power plants to reduce regulated emissions.

The amount of these expenditures could change materially depending on the timing and nature of required investments, 681

WESTAR ENERGY 1 2012 ANNUAL REPORT the specific outcomes resulting from existing regulations, new in part or in whole, we do not believe the impact on our operations regulations, legislation and the manner in which we operate the and consolidated financial results would be material.

plants. In addition to the capital investment, in the event we install new equipment, such equipment may cause us to incur significant Greenhouse Gases increases in annual operating and maintenance expense and Under regrilations known as the Tailoring Rule, the EPA is may reduce the net production, reliability and availability of the regulatinggreenhouse gas (GHG) emissions from certain stationary plants. The degree to which we will need to reduce emissions and sources. The regulations are being implemented pursuant to two the timing of when such emissions controls may be required is federal Clean Air Act programs which impose recordkeeping and uncertain. Additionally, our ability to access capital markets and the monitoring requirements and also mandate the implementation of availability of materials, equipment and contractors may affect the best available control technology (BACT) for projects that cause a timing and ultimate amount of such capital investments. significant increase in GHG emissions (defined to be more than 75,000 tons or more per year or 100,000 tons or more per year, In comparison to a general rate review, the ECRR reduces the depending on various factors). The EPA has issued guidance amount of time it takes to begin collecting in retail prices the costs on what BACT entails for the control of GHGs and individual associated with capital expenditures for qualifying environmental states are now required to determine what controls are required improvements. We are not allowed to use the ECRR to collect cost for facilities within their jurisdiction on a case-by-case basis. We associated with our approximately $610.0 million share of the cannot at this time determine the impact of these regulations on projected capital investment associated with the $1.2 billion of our operations and consolidated financial results, but we believe environmental upgrades at La Cygne. We therefore must file for a the cost of compliance with the regulations could be material.

general review of our rates or an abbreviated rate review with the KCC in order to collect these costs. As previously discussed, the Renewable Energy Standard KCC approved our request to file an abbreviated rate review within Kansas law mandates that we maintain a minimum amount of 12 months of the April 2012 order to update our prices to include renewable energy sources. Through 2015 net renewable generation capital costs related to environmental projects at La Cygne. To capacity must be 10% of the average peak demand for the three change our prices to collect increased operating and maintenance prior years, subject to limited exceptions. This requirement costs, we must file a general rate review with the KCC. increases to 15% for years 2016 through 2019 and 20% for 2020 and thereafter. In 2012, we began purchasing tinder 20-year supply Air Emissions contracts the renewable energy produced from approximately The operation of power plants results in emissions of mercury, acid 370 MW of additional wind generation, which, together with gases and other air toxics. In 2011, the EPA published Mercury and existing facilities, supply contracts and renewable energy credits, Air Toxics Standards for power plants, which replaces the prior will allow us to satisfy the net renewable generation requirement federal Clean Air Mercury Rule and requires significant reductions through 2015 and contribute toward meeting the increased in mercury, acid gases and other emissions. Companies impacted requirements beginning in 2016. If we are unable to meet future by the new standards will have up to three years, or four years with requirements, our operations and consolidated financial results approval from a state environmental regulatory agency, and in could be adversely impacted.

certain limited circumstances up to five years, to comply. We have obtained approval from our state environmental regulatory agency EPA Consent Decree and expect to be compliant with the new standards within four As part of a 2010 settlement of a lawsuit filed by the Department years. We continue to evaluate the new standards and believe that of Justice on behalf of the EPA, we are installing selective catalytic our related investment will be less than $16.0 million. reduction (SCR) equipment on one of three JEC coal units by the end of 2014, which we estimate will cost approximately In mid 2011, the EPA finalized the Cross-State Air Pollution Rule $240.0 million. The settlement also required that we determine (CSAPR) requiring 28 states, including Kansas, Missouri and whether we needed to install additional SCR equipment on Oklahoma, to further reduce power plant emissions of SO, and another JEC unit or if we can meet agreed upon plant-wide NOx NOx. Under CSAPR, reductions in annual SO. and NOx emissions emissions reduction limits using other controls. We have informed were required to begin January 2012, with further reductions the EPA that we believe we can meet the terms of the settlement required beginning January 2014. The EPA also published a final by installing less expensive NOx reduction equipment rather supplemental rule to CSAPR later in 2011 requiring five states, than additional SCR equipment. We plan to complete these projects including Missouri and Oklalhoma, to make summertime reductions in 2014 and recover the costs to install these systems through in NOx emissions beginning in May 2012. Although Kansas was our ECRR, but such recovery remains subject to the approval of included in the original proposed nrle, the final supplemental rule our regilators.

instead called for the EPA to revisit Kansas' status once Kansas submitted an ozone state implementation plan. In August 2012, FERC Investigation the U.S. Court of Appeals for the District of Columbia Circuit The Federal Energy Regulatory Commission (FERC) opened a non-vacated CSAPR and remanded the rule to the EPA to promulgate public investigation of our use of transmission service between a replacement. In October 2012, the EPA filed a petition with the July 2006 and February 2008. In May 2009, FERC staff alleged that court requesting a rehearing before the full court. In January 2013, we improperly used secondary network transmission service to the court issued orders declining to rehear the case. We cannot facilitate off-system wholesale power sales in violation of applicable at this time predict how the EPA may proceed with rulemaking; FERC orders and Southwest Power Pool (SPP) tariffs and that we however, based on our current and planned environmental received $14.3 million of unjust profits through such activities.

controls, if the regulations were to be reinstated or replaced, either Based on our response to these allegations, FERC staff substantially 169

WESTAR ENERGY I 2012 ANNUAL REPORT revised downward its preliminary conclusions to allege that we spent nuclear fuel. Our share of the fee, calculated as one tenth of received $0.9 million of unjust profits and failed to pay $0.8 million a cent for each kilowatt-hour of net nuclear generation delivered to the SPP for transmission service. As of December 31, 2012 and to customers, was $3.6 million in 2012, $3.1 n-llion in 2011 and 2011, we had recorded a liability of $1.6 million and $0.5 million, $4.0 million in 2010. We include these costs in fuel and purchased respectively related to the potential settlement of this investigation power expense on our consolidated statements of income.

and the risks of litigating this matter to a final outcome. We settled In 2010, the DOE filed a motion with the NRC to withdraw its with FERC inJanuary 2013 resulting inpayments totaling $1.6 millon.

then pending application 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. An NRC board denied the DOE's motion permanent shutdown of a nuclear power plant and the removal to withdraw its application and the DOE appealed that decision of radioactive components in accordance with Nuclear Regulatory to the ftill NRC. In 2011, the NRC issued an evenly split decision Commission (NRC) requirements. The NRC will tem-inate a on the appeal and also ordered the licensing board to close out its plant's license and release the property for unrestricted use when work on the DOE's application by the end of 2011 due to a lack of a company has reduced the residual radioactivity of a nuclear plant funding. These agency actions prompted the States of Washington to a level mandated by the NRC.The NRC requires companies with and South Carolina, and a county in South Carolina, to file a lawsuit nuclear plants to prepare formal financial plans to fund nuclear in a federal Court of Appeals asking the court to compel the NRC decommissioning. These plans are designed so that sufficient funds to resume its license review and to issue a decision on the license required for nuclear decommissioning will be accumulated prior to application. In August 2012, the court ordered the parties to report the expiration of the license of the related nuclear power plant. Wolf to it, no later than December 14, 2012 (later extended to January 4, Creek files a nuclear decommissionhig site study with the KCC 2013), whether Congress had provided funding for the NRC to every three years. proceed on the license application. By that date, Congress had not yet provided funding, and the parties filed their respective status The KCC reviews nuclear decommissioning plans in two phases.

reports and arguments on whether or not the court should order Phase one is the approval of the revised nuclear decommissioning the NRC to resume its license review. The court has not yet acted study including the estimated costs to decommission the plant.

on the pending request. Wolf Creek has an on-site storage facility Phase two involves the review and approval of a funding schedule designed to hold all spent fuel generated at the plant through 2025 prepared by the owner of the plant detailing how it plans to and believes it will be able to expand on-site storage as needed fund the future-year dollar amount of its pro rata share of the decommissioning costs. past 2025. We cannot predict when, or if, an alternative disposal site will be available to receive Wolf Creek's spent nuclear fuel and will In 2011 we revised the nuclear decommissioning study. Based continue to monitor this activity.

on the study, our share of decommissioning costs, including decontamination, dismantling and site restoration, is estimated Wolf Creek disposes of most of its low-level radioactive waste at to be $296.2 million. This amount compares to the prior site study an existing third-party repository in Utah, which we expect will estimate of $279.0 million. The site study cost estimate represents remain available to Wolf Creek. Wolf Creek also contracts with a the estimate to decommission Wolf Creek as of the site study year. waste processor to process, take title and dispose in another state The actual nuclear decommissioning costs may vary from the most of the remainder of Wolf Creek's low-level radioactive waste.

estimates because of changes in regulations and technologies as Should on-site waste storage be needed in the future, Wolf Creek well as changes in costs for labor, materials and equipment. has storage capacity on site adequate for about four years of plant operations and believes it will be able to expand that storage We are allowed to recover nuclear decommissioning costs in our capacity if needed.

prices over a period equal to the operating license of Wolf Creek, which is through 2045. The NRC requires that funds sufficient to Nuclear Insurance meet nuclear decommissioning obligations be held in a trust. We We maintain nuclear insurance for Wolf Creek in four areas:

believe that the KCC approved funding level will also be sufficient liability, worker radiation, property and accidental outage. These to meet the NRC requirement. Our consolidated financial results policies contain certain industry standard exclusions, including, would be materially affected if we were not allowed to recover in but not limited to, ordinary wear and tear and war. The nuclear our prices the full amount of the funding requirement. liability program subscribed to by members of the nuclear power generating industry no longer include industry aggregate limits for We recovered in our prices and deposited in an external trust non-certified acts, as defined by the Tenorism Risk Insurance Act, of fund for nuclear decommissioning approxi'mately $3.2 million in terrorism-related losses. An industry aggregate limit of $3.2 billion 2012, $3.2 million in 2011 and $3.1 million in 2010. We record our plus any reinsurance recoverable by Nuclear Electric Insurance investment in the NDT fund at fair value, which approximated

$150.8 million and $130.3 million as of December 31, 2012 and Limited (NEIL), our insurance provider, exists for property clains, including accidental outage power costs, for acts of terrorism 2011, respectively.

affecting Wolf Creek or any other nuclear energy facility property Storage of Spent Nuclear Fuel policy within 12 months from the date of the first act. These linits Under the Nuclear Waste Policy Act of 1982, the Department of are the maximum amount to be paid to members who sustain Energy (DOE) is responsible for the permanent disposal of spent losses or damages from these types of terrorist acts. In addition, nuclear fuel. Wolf Creek pays into a federal Nuclear Waste Fund we may be required to participate in industry-wide retrospective administered by the DOE a quarterly fee for the future disposal of assessment programs as discussed below.

70J

WESTAR ENERGY I 2012 ANNUAL REPORT Nuclear Liability Insurance As of December 31, 2012, our coal and coal transportation contract Pursuant to the Price-Anderson Act, which has been reauthorized commitments under the remaining ten-ns of the contracts were through December 31, 2025, by the Energy Policy Act of 2005, approximately $648.2 million. The contracts are for plants that we we are required to insure against public liability claims resulting operate and expire at various times through 2021.

from nuclear incidents to the full limit of public liability which is As of December 31, 2012, our natural gas transportation contract currently approximately $12.6 billion. This limit of liability consists commitments under the remaining terms of the contracts were of the maximum available commercial insurance of $375.0 million approximately $129.0 million. The natural gas transportation and the remaining $12.2 billion is provided through mandatory contracts provide firm service to several of our natural gas burning participation in an industry-wide retrospective assessment facilities and expire at various times tl-rough 2030.

program. Under this retrospective assessment program, the owners of Wolf Creek are jointly and severally subject to an assessment We have purchase power agreements with the owners of four of tip to $117.5 million (our share is $55.2 million), payable at no separate wind generation facilities with installed design capacities more than $175 million (our share is $8.2 million) per incident per of 515 MW. The agreements expire in 2028 through 2032. Each of year per reactor. Both the total and yearly assessment is subject the agreements provide for our receipt and purchase of energy to an inflation adjustment based on the Consumer Price Index produced at a fixed price per unit of output. We estimate that and applicable premium taxes. This assessment also applies in our annual cost of energy purchased from these wind generation excess of our worker radiation claims insurance. The next inflation facilities will be approximately $68.2 million beginning in 2013.

adjustment is scheduled for 2013. In addition, Congress could impose additional revenue-raising measures to pay claims. We have acquired rights to transmit a total of 306 MW of power.

Agreements providing transmission capacity for approximately Nuclear Property Insurance 200 MW expire in 2016 while the remaining 106 MW expire in 2022.

The owners of Wolf Creek carry decontamination liability, premature As of December 31,2012, we are committed to spend approximately nuclear decommissioning liability and property damage insurance $34.3 million over the remaining terms of these agreements.

for Wolf Creek totaling approximately $2.8 billion (our share is $1.3 billion). This insurance is provided by NEIL. In the event 14. ASSET RETIREMENT OBLIGATIONS of an accident, insurance proceeds must first be used for reactor stabilization and site decontamination in accordance with a plan Legal Liability mandated by the NRC. Our share of any remaining proceeds can be We have recognized legal obligations associated with the disposal used to pay for property damage, decontamination expenses or, if of long-lived assets that result from the acquisition, construction, certain requirements are met, including nuclear decommissioning development or nonnal operation of such assets. The recording of the plant, toward a shortfall in the NDT fund. AROs for regulated operations has no income statement impact Accidental Nuclear Outage Insurance due to the deferral of the adjustments through the establishment The owners also carry additional insurance with NEIL to cover costs of a regulatory asset.

of replacement power and other extra expenses incurred during a We initially recorded AROs at fair value for the estimated cost to prolonged outage resulting from accidental property damage at decommission Wolf Creek (KGE's 47% share), retire our wind Wolf Creek. If significant losses were incurred at any of the nuclear generation facilities, dispose of asbestos insulating material at plants insured under the NEIL policies, the owners of Wolf Creek our power plants, remediate ash disposal ponds and dispose of may be subject to retrospective assessments under the current polychlorinated biphenyl (PCB)-contaminated oil.

policies of approximately $30.2 million (our share is $14.2 million).

The following table summarizes our legal AROs included on our Although we maintain various insurance policies to provide consolidated balance sheets in long-term liabilities.

coverage for potential losses and liabilities resulting from an As of December 31, 2012 2011 accident or an extended outage, our insurance coverage may not (InThousands) be adequate to cover the costs that could result from a catastrophic accident or extended outage at Wolf Creek. Any substantial losses Beginning ARO ................................ $142,508 $ 125,999 Liabilities settled ................................ (1,389) (1,027) not covered by insurance, to the extent not recoverable in our prices, Accretion expense .............................. 8,454 7,623 would have a material effect on our consolidated financial results. Increase in nuclear decommissioning ARO liability ...... - 9,913 Revisions in estimated cash flows ................... 3,075 -

Fuel, Purchased Power and Transmission Commitments Ending ARO ................................. $152,648 $ 142,508 To supply a portion of the fuel requirements for our power plants, the owners of Wolf Creek have entered into various As discussed in Note 13, "Commitments and Contingencies -

contracts to obtain nuclear fuel and we have entered into various Nuclear Decommissioning," Wolf Creek filed a nuclear decom-contracts to obtain coal and natural gas. Some of these contracts missioning study with the KCC in 2011. As a result of the study, we contain provisions for price escalation and minimum purchase recorded a $9.9 million increase in our ARO to reflect revisions to commitments. As of December 31, 2012, our share of Wolf Creek's nuclear fuel commitments was approximately $42.2 million for the estimated costs to decommission Wolf Creek.

uranium concentrates expiring in 2017, $6.3 million for conversion Conditional ARO refers to a legal obligation to perfornm an asset expiring in 2017, $106.3 million for enrichment expiring in 2025 retirement activity in which the timing and/or method of settlement and $36.0 million for fabrication expiring in 2023. are conditional on a future event that may or may not be within 171

WESTAR ENERGY I 2012 ANNUAL REPORT the control of the entity. We determined that our conditional AROs Westar Energy has a direct stock purchase plan (DSPP). Shares of include the retirement of our wind generation facilities, disposal of common stock sold pursuant to the DSPP may be either original asbestos insulating material at our power plants, the remediation issue shares or shares purchased in the open market. During 2012, of ash disposal ponds and the disposal of PCB-contaminated oil. 2011 and 2010, Westar Energy issued 0.8 million shares, 0.8 million shares and 0.7 million shares, respectively, through the DSPP We have an obligation to retire our wind generation facilities and and other stock-based plans operated under the LTISA Plan. As remove the foundations. The ARO related to our wind generation of December 31, 2012 and 2011, a total of 1.5 million shares and facilities was determined based upon the date each wind generation 2.0 million shares, respectively, were available under the DSPP facility was placed into service.

registration statement.

The amount of the retirement obligation related to asbestos Issuances disposal was recorded as of 1990, the date when the EPA published In April 2010, Westar Energy entered into a three-year Sales the "National Emission Standards for Hazardous Air Pollutants:

Agency Financing Agreement and forward sale agreement with Asbestos NESHAP Revision; Final Rule."

a bank. The maximum amount that Westar Energy may offer We operate, as pernitted by the state of Kansas, ash landfills at and sell under the agreements is the lesser of an aggregate of several of our power plants. The retirement obligation for the ash $500.0 million or approximately 22.0 million shares, subject to landfills was determined based upon the date each landfill was adjustment for share splits, share combinations and share dividends.

originally placed in service. Under the terms of the Sales Agency Financing Agreement, Westar Energy may offer and sell shares of its common stock from time PCB-contaminated oil is contained within company electrical to time through the broker dealer subsidiary, as agent. The broker equipment, primarily transfonners. The PCB retirement obligation dealer receives a commission equal to 1% of the sales price of all was determined based upon the PCB regulations that originally shares sold under the agreement. In addition, under the terms of the became effective in 1978.

Sales Agency Financing Agreement and forward sale agreement, Non-Legal Liability - Cost of Removal Westar Energy may from time to time enter into one or more We collect in our prices the costs to dispose of plant assets that do forward sale transactions with the bank, as forward purchaser, and not represent legal retirement obligations. As of December 31, 2012 the bank will borrow shares of Westar Energy's common stock from and 2011, we had $129.0 million and $82.3 million, respectively, in third parties and sell them through its broker dealer. Westar Energy amounts collected, but not yet spent, for removal costs classified as must settle the forward sale transactions within 18 months of the a regulatory liability. date each transaction is entered. In 2011 and 2010, Westar Energy entered into and settled forward sale transactions with respect to an aggregate of approximately 5.4 million shares of common

15. LEGAL PROCEEDINGS stock for proceeds of approximately $118.3 million. During 2012, In 2011, we reached agreements with two former executive Westar Energy entered into additional forward sale transactions officers settling all contractual obligations related to their previous with respect to an aggregate of approximately 1.8 million shares employment. The agreements required us to make payments totaling of common stock. Assuming physical share settlement of these approximately $57.0 million, pay approximately $8.4 million for their forward sale transactions as of December 31, 2012, Westar legal fees and expenses, and release deferred stock for compensation Energy would have received aggregate proceeds of approximately shares. We also reversed the remaining approximately $22.0 milion $48.1 million based on a forward price of $27.45 per share.

of previously accrued liabilities in 2011, which reduced selling, In November 2010, Westar Energy entered into a separate forward general and administrative expense reported on our consolidated sale agreement with a bank. Under the terms of the agreement, statement of income. the bank, as forward seller, borrowed 7.5 million shares of Westar We and our subsidiaries are involved in various other legal, Energy's common stock from third parties and sold them to a group environmental and regulatory proceedings. We believe that of underwriters for $25.54 per share. Under an over-allotment adequate provisions have been made and accordingly believe option included in the agreement, the underwriters purchased that the ultimate disposition of such matters will not have a approximately 1.0 million additional shares for $25.54 per share, increasing the total number of shares under the forward sale material effect on our consolidated financial results. See Note 3, "Rate Matters and Regulation,"and Note 13,"Commitments and agreement to approximately 8.5 million shares. The underwriters Contingencies,"for additional information. received a commission equal to 3.5% of the sales price of all shares sold under the agreement. In November 2011, Westar Energy delivered approximately 8.5 million shares of common stock for

16. COMMON AND PREFERRED STOCK proceeds of approximately $197.3 million as complete settlement of Common Stock this forward sale agreement.

General Westar Energy used the proceeds from the issuance of common In May 2011, Westar Energy shareholders approved an amendment stock to repay short-term borrowings, with such borrowed amounts to its Restated Articles of Incorporation to increase the number of principally related to investments in capital equipment, as well as shares of common stock authorized to be issued from 150.0 million to for working capital and general corporate purposes.

275.0 million. As of December 31, 2012 and 2011, Westar Energy had issued 126.5 million shares and 125.7 million shares, respectively.

721

WESTAR ENERGY I 2012 ANNUAL REPORT Preferred Stock Redemption 50% Interest in La Cygne Unit 2 In May 2012, Westar Energy provided an irrevocable notice of Under an agreement that expires in September 2029 KGE entered redemption to holders of all of Westar Energy's preferred shares. into a sale-leaseback transaction with a trust under which the trust Accordingly, we reduced preferred equity to zero, recognized purchased KGE's 50% interest in La Cygne unit 2 and subsequently the obligation to redeem the preferred shares as a liability and leased it back to KGE. The trust was financed with an equity recognized the redemption premium as a preferred stock dividend. contribution from an owner participant and debt issued by the trust.

Payment was due to holders of the preferred shares effective July 1, The trust was created specifically to purchase the 50% interest in La 2012. The table below shows the redemption amounts for all series Cygne unit 2 and lease it back to KGE, and does not hold any other of preferred stock. assets. We meet the requirements to be considered the primary beneficiary of the trust. In determining the primary beneficiary of Total Principal Call Cost the trust, we concluded that the activities of the trust that most Rate Shares Outstanding Price Premium to Redeem significantly impact its economic performance and that we have (Dollars in Thousands) the power to direct include (1) the operation and maintenance of 4.50% 121,613 $12,161 108.0% $ 973 $13,134 the 50% interest in La Cygne unit 2, (2) our ability to exercise a 4.25% 54,970 5,497 101.5% 82 5,579 purchase option at the end of the agreement at the lesser of fair 5.00% 37,780 3,778 1020% 76 3,854 value or a fixed amount and (3) our option to require refinancing 214,363 $21,436 $1,131 $22,567 of the trust's debt. We have the potential to receive benefits from the trust that could potentially be significant if the fair value of the 50% interest in La Cygne unit 2 at the end of the agreement is

17. VARIABLE INTEREST ENTITIES greater than the fixed amount.The possibility of lower interest rates In determining the primary beneficiary of a VIE, we assess the upon refinancing the debt also creates the potential for uis to receive entity's purpose and design, including the nature of the enity's significant benefits.

activities and the risks that the entity was designed to create and Railcars pass through to its variable interest holders. A reporting enterprise is Under two separate agreements that expire in May 2013 and deemed to be the primary beneficiary of aVIE if it has (a) the power November 2014, we lease railcars from trusts to transport coal to to direct the activities of theVIE that most significantly impact the some of our power plants. The trusts were financed with equity VIE's economic performance and (b) the obligation to absorb losses contributions from owner participants and debt issued by the or right to receive benefits from the VIE that could potentially be trusts. The trusts were created specifically to purchase the railcars significant to the VIE. Accounting guidance effective January 1, and lease them to us, and do not hold an), other assets. We meet 2010, requires the primary beneficiary of a VIE to consolidate the the requirements to be considered the primary beneficiary of the VIE. The trusts holding our 8% interest in JEC, our 50% interest in some of trusts. In determining the primary beneficiary of the trusts, we La Cygne unit 2 and railcars we use to transport coal to concluded that the activities of the trusts that most significantly our power plants are VIEs of which we are the primary beneficiary.

impact their economic performance and that we have the power We assess all entities with which we become involved to determine to direct include the operation, maintenance and repair of the whether such entities are VIEs and, if so, whether or not we are railcars and our ability to exercise a purchase option at the end of the primary' beneficiary of the entities. We also continuously assess the agreements at the lesser of fair value or a fixed amount. We whether we are the primary beneficiary of the VIEs with which have the potential to receive benefits from the trusts that could we are involved. Prospective changes in facts and circumstances potentially be significant if the fair value of the railcars at the end of may cause us to reconsider our determination as it relates to the the agreements is greater than the fixed amounts. Our agreements identification of the primary beneficiary. with these trusts also include renewal options during which time we would pay a fixed amount of rent. We have the potential to 8% Interest in Jeffrey Energy Center receive benefits from the trusts dturing the renewal periods if the Under an agreement that expires in January 2019, we lease an 8% fixed amount of rent is less than the amount we would be required interest in JEC from a trust. The trust was financed with an equity to pay' under a new agreement.

contribution from an owner participant and debt issued by the trust.

The trust was created specifically to purchase the 8% interest in JEC Financial Statement Impact and lease it to a third party, and does not hold any other assets. We We have recorded the following assets and liabilities on our meet the requirements to be considered the primary beneficiary of consolidated balance sheets related to theVIEs described above.

the trust. In determining the primary beneficiary of the trust, we As of December 31, 2012 2011 concluded that the activities of the trust that most significantly (inThousands) impact its economic performance and that we have the power to Assets:

direct include (1) the operation and maintenance of the 8% interest Property, plant and equipment of variable interest in JEC, (2) our ability to exercise a purchase option at the end of entities, net .................................. $ 321,975 $333,494 the agreement at the lesser of fair value or a fixed amount and (3) Regulatory assetsu .............................. 5,810 4,915 Liabilities:

our option to require refinancing of the trust's debt. We have the Current maturities of long-term debt of variable potential to receive benefits from the trust that could potentially be interest entities ............................... $ 25,942 $ 28,114 5 . . . . . .. . . . . . . . . . . . . . . . . . . . . . .

significant if the fair value of the 8% interest in JEC at the end of the Accrued interest b) . 3,948 4,448 Long-term debt of variable interest entities, net ........ 222,743 249,283 agreement is greater than the fixed amount.The possibility of lower interest rates upon refinancing the debt also creates the potential Inchluded in long-terni regulatoty assets oH our consolidatedbalance sheets.

• Included in accrued intercst on our consolidated balance shcets.

for us to receive significant benefits.

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WESTAR ENERGY I 2012 ANNUAL REPORT All of the liabilities noted in the table above relate to the purchase Capital leases are treated as operating leases for rate making of the property, plant and equipment. The assets of the VIEs can purposes. Minimum annual rental payments, excluding administra-be used only to settle obligations of the VIEs and the VIEs' debt tive costs such as property taxes, insurance and maintenance, under holders have no recourse to our general credit. We have not capital leases are listed below.

provided financial or other support to theVIEs and are not required Total to provide such support. We did not record any gain or loss upon Capital initial consolidation of the VIEs. Year Ended December 31, Leases (InThousands) 20 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,538

18. LEASES 2014 ........... 6,363 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,840 Operating Leases 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,087 We lease office buildings, computer equipment, vehicles, railcars 20 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,708 Thereafte r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,800 and other property and equipment.These leases have various terms and expiration dates ranging from one to 20 years. 105,336 Amounts representing imputed interest ............................ (48,461)

In determining lease expense, we recognize the effects of scheduled Present value of net minimum lease payments under capital leases ....... 56,875 rent increases on a straight-line basis over the minimum lease Less: C urrent portio n .................................. ........ 3,066 term. Rental expense and estimated future commitments under Total long-term obligation under capital leases ....................... $ 53,809 operating leases are as follows.

Total Operating 19. QUARTERLY RESULTS (UNAUDITED)

Year Ended December 31, Leases (inThousands)

Our business is seasonal in nature and, in our opinion, comparisons Rental expense: between the quarters of a year do not give a true indication of 2 0 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15 ,4 6 4 2 0 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 7,57 7 overall trends and changes in operations.

2 0 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ,0 8 0 2012 First Second Third Fourth Future commitments: (InThousands, Except Per Share Amounts) 20 13 . . . . . . . . . . . . . .. .. . .. .. .. . .. .. .. .. .. .. .. . .. .. .. .. . .. . $ 14 ,4 5 3 Revenues(,) ................ $475,677 $566,262 $695,758 $523,772 2 0 14 . . . . . . . . . . . . . .. .. . .. .. .. .. . .. .. .. .. .. .. . .. .. .. .. .. . . 12 ,5 5 0 Net income',. .............. 29,237 64,462 141,067 47,695 2 0 15 . . . . . . . . . . . . . .. .. .. . .. .. .. .. . .. .. .. .. .. .. . .. .. .. .. . . 10 ,14 2 Net income attributable 2 0 16 . . . . . . . . . . . . . .. .. .. . .. .. .. .. . ... . .. .. .. .. . .. .. .. .. . . 8 ,3 9 0 to common stock") 27,282 61,361 139,281 45,607 20 17 . . . . . . . . . . . . . .. .. . .. .. .. . .. .. .. .. .. .. . .. .. .. .. .. . .. . 6,6 9 4 Per Share Data"':

Thereafter . .. . . . .. . . .. . . . .. . .. .. . . .. . . . .. .. .. . . .. . . .. . . .. . 18 ,04 9 Basic:

Earnings available ....... $ 0.21 $ 0.48 $ 1.10 $ 0.36 Total future com m itm ents ................................... $ 70,278 Diluted:

Earnings available ....... $ 0.21 $ 0.48 $ 1.09 $ 0.36 Cash dividend declared per Capital Leases common share ........... $ 0.33 $ 0.33 $ 0.33 $ 0.33 We identify capital leases based on defined criteria. For both Market price per common share:

vehicles and computer equipment, new leases are signed each High ................... $ 29.13 $ 30.17 $ 33.04 $ 30.29 month based on the terms of master lease agreements. The lease Low ................... $ 27.12 $ 26.80 $ 28.96 $ 27.33 (us Itemsti are computed independentfly fior each of the periods presented and tile slat term for vehicles is from two to eight years depending on the type of vehicle. Computer equipment has a lease term of three to five years. oftthe quarterltl amounts assay not equal the totalfsr the year In 2012, we signed an agreement to lease electrical facilities that 2011 First Second Third Fourth connect a wind generating facility to the transmission system. The (inThousands, Except PerShare Amounts) agreement extends through August 2032, at which time it may be Revenues' ................ $481,720 $524,892 $678,152 $486,228 extended or we may exercise an option to purchase the line. The Net income(,) .............. 32,957 45,525 136,392 21,306 terms of the agreement meet the criteria of a capital lease; therefore, Net income attributable to common stock, ........ 31,342 43,887 134,708 19,335 we recorded an $8.3 million capital lease.

Per Share Datall:

In 2011, FERC issued an order approving a power supply agreement. Basic:

Earnings available ....... $ 0.27 $ 0.38 $ 1.15 $ 0.16 The agreement extends through May 2039 and the terms meet the Diluted:

criteria to be classified as a capital lease. Accordingly, we recorded a Earnings available .. .. $ 0.27 $ 0.38 $ 1.14 $ 0.16

$40.0 million capital lease in 2011. Cash dividend declared per common share .......... $ 0.32 $ 0.32 $ 0.32 $ 0.32 Assets recorded under capital leases, including the 2012 and 2011 Market price per common share:

leases described above presented as generation plant, are listed below. High ................... $ 26.60 $ 27.98 $ 27.29 $ 29.05 Low ................... $ 25.05 $ 25.58 $ 22.63 $ 25.02 As of December 31, 2012 2011 114Itets are computed indepetdenstly.fireach of the periods presented and tse sum (InThousands) qfthe quarterly ansounts inay not equal the total fbr the year.

Vehicles ......................................... $ 12,594 S 14,241 Com puter equipm ent .............................. 1,423 1,720 Generation plant .................................. 48,346 40,048 Accumulated amortization ........................... (6,928) (6,485)

Total capital leases ............................... $ 55,435 S 49,524 741

WESTAR ENERGY I 2012 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 ITEM 9A. CONTROLS AND PROCEDURES Regulation S-K will be included under the caption "Election of Directors" in our definitive Proxy Statement for our 2013 Annual We maintain a set of disclosure controls and procedures designed Meeting of Shareholders to be filed pursuant to Regulation 14A to ensure that information required to be disclosed in reports (2013 Proxy Statement), and that informration is incorporated by that we file or submit uinder the Securities Exchange Act of 1934 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 periods specified in Securities and Exchange Commission rules and Part I, Item I of this Form 10-K. The infonnation required by Item forms. In addition, the disclosure controls and procedures include, 405 of Regulation S-K concerning compliance with Section 16(a) of 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 2013 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) timely decisions regarding required disclosure. As of the end of the and (d)(5) of Regulation S-K will be included under the caption period covered by this report, based on an evaluation carried out "Corporate Governance Matters"in our 2013 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 disclrosure controls and procedures were effective. The information required by Item 11 will be set forth in our 2013 Proxy Statement under the captions "Compensation Discussion There were no changes in our internal control over financial and Analysis,""Compensation Committee Report,""Compensation reporting during the three months ended December 31, 2012, that of Executive Officers and Directors,""Director Compensation" and have materially affected, or are reasonably likely to materially affect, "Compensation Committee Interlocks and Insider Participation,'

our internal control over financial reporting.

and that information is 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 Public Accounting OWNERS AND MANAGEMENT Firm's report with respect to the effectiveness of internal control over financial reporting. The information required by Item 12 will be set forth in our 2013 Proxy Statement under the captions "Beneficial Ownership of Voting Securities"and"Equity Compensation Plan Information,'and ITEM 9B. OTHER INFORMATION 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 2013 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 2013 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 Forni 10-K.

175

WESTAR ENERGY 1 2012 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 Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2012 and 2011 Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010 Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010 Consolidated Statements of Changes in Equity for the years ended December 31, 2012, 2011 and 2010 Notes to Consolidated Financial Statements SCHEDULES Schedule 1I-Valuation and Qualifying Accounts Schedules omitted as not applicable or not required under the Rules of Regulation S-X: I, III, lV andV.

EXHIBIT INDEX All exhibits marked"I" are incorporated herein by reference. All exhibits marked with"... are management contracts or compensatory plans or arrangements required to be identified by Item 15(a)(3) of Form 10-K. All exhibits marked"#"are filed with this Form 10-K.

Description 1(a) Uncder.wTiting Agreement, dated Febniarv 27, 2012, among Barclays Capital Inc., Mitsubishi UFJ Securities (USA), Inc. and I Wells Fargo Securities, LLC as representatives of the several underwriters named therein, and Westar Energy Inc. (filed as Exhibit 1.1 to the Fori 8-K filed on February 29, 2012) 1(b) Amendment to Sales Agency Financing Agreement, dated May 26, 2010, among Westar Energy Inc., BNY Mellon Capital Markets, LLC, and The Bank of NewYork Mellon (filed as Exhibit 1(a) to the Form 10-Q for the period ended June 30, 2012 filed on August 7, 2012) 1(c) Second Amendment to Sales Agency Financing Agreement, dated May 9, 2012, among Westar Energy, Jnc., BNY Mellon Capital Markets, LLC, and The Bank of NewYork Mellon (filed as Exhibit 1(b) to the Form 10-Q for the period ended March 31, 2012 filed on May 9, 2012) 1(d) Undenrwiting Agreement, dated May 14, 2012, among BNP Paribas Securities Corp., Citigroup Global Markets Inc. and J.P Morgan Securities LLC, as representatives of the several underwriters named therein, and Westar Energy, Inc. (filed as Exhibit 1.1 to the Form 8-K filed on May 16, 2012) 3(a) By-laws of Westar Energy, Inc., as amended April 28, 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, 1988) 3(c) Certificate of Amendment to Restated Articles of Incorporation of Westar Energý Inc. (filed as Exhibit 3 to the Form 10-K405 for the period ended December 31, 1998 filed on April 14, 1999) 3(d) Certificate of Correction to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(b) to the Form 10-K for the period ended December 31, 1991 filed on March 30, 1992) 3(e) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy Inc. (filed as Exhibit 3(c) to the Form 10-K for the period ended December 31, 1994 filed on March 30, 1995) 3(0 Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3 to the Form 10-Q for the period ended June 30, 1994 filed on August 11, 1994) 3(g) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(a) to the Form 10-Q for the period ended June 30, 1996 filed on August 14, 1996) 3(h) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3 to the Form 10-Q for the period ended March 31, 1998 filed on May 12, 1998) 3(i) Forn of Certificate of Designations for 7.5% Convertible Preference Stock (filed as Exhibit 99.4 to the Forn 8-K filed on November 17, 2000) 3(j) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(1) to the Form 10-K for the period ended December 31, 2002 filed on April 11, 2003) 3(k) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(m) to the Form 10-K for the period ended December 31, 2002 filed on April 11, 2003) 3(l) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(m) to the Form S-3 Registration Statement No. 333-125828 filed on June 15, 2005) 761 3(m) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc.

WESTAR ENERGY I 2012 ANNUAL REPORT 3(n) Form of Certificate of Decertification of Preference Shares #

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 (filed as Exhibit 4(b) to Registration Statement No. 33-21739) 1 4(e) Twenty-Eighth Supplemental Indenture dated July 1, 1992 (filed as Exhibit 4(o) to the Form 10-K for the period ended I 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 ended I 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 ended I 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 Statement I 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 ended I December 31, 1994 filed on March 30, 1995) 4(j) Senior Indenture dated August 1, 1998 (filed as Exhibit 4.1 to the Form 10-Q for the period ended June 30, 1998 filed I on August 12, 1998) 4(]k) Form of Senior Note (included in Exhibit 4(j)) I 4(1) Thirty-Fourth Supplemental Indenture dated June 28, 2000 (filed as Exhibit 4(v) to the Form 10-K for the period ended I December 31, 2000 filed on April 2, 2001) 4(m) Thirtv-Fifth Supplemental Indenture dated May 10, 2002 between Westar Energy, Inc. and BNY Midwest Trust Company, I 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(n) 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(o) Thirty-Seventh Supplemental Indenture, dated as of June 17, 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 4.2 to the Form 8-K filed on January 18, 2005) 4 (p) Thirty-Eighth Supplemental Indenture, dated as of January 18, 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 4.3 to the Form 8-K filed on January 18, 2005.)

4(q) Thirty-Ninth Supplemental Indenture dated June 30, 2005 between Westar Energy, Inc. and BNY Midwest Trust Company I (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(r) 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(s) Form of First Mortgage Bonds, 6.10% Series Due 2047 (contained in Exhibit 4(r)) I 4(t) Forty-First Supplemental Indenture, dated as of November 25, 2008 by and among Westar Energy, Inc., The Bank of New I York Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4.1 to the Form 8-K filed on November 24, 2008) 4(u) Form of Forty-Second Supplemental Indenture, dated as of March 1,2012 by and among Westar Energy, Inc., The Bank I of NewYork Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4.1 to the Form 8-K filed on February 29, 2012) 4(v) Form of Forty-Second Supplemental (Reopening) Indenture, dated as of May 17, 2012 by and among Westar Energy; Inc., I The Bank of NewSbrk Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4.1 to the Form 8-K filed on May 16, 2012) 4(w) Fifty-Eighth Supplemental Indenture, dated as of February 12, 2013, by and among Kansas Gas and Electric Company, The Bank of NewYork Mellon Trust Company, N.A. and Richard Tarnas (filed as Exhibit 4.1 to the Formn 8-K filed on Februarv 15, 2013)

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) Executive Salary Continuation Plan of Western Resources, Inc., as revised, effective September 22, 1995 (filed as Exhibit I 10(j) to the Form 10-K for the period ended December 31, 1995 filed on March 27, 1996)*

10(b) Long-Term Incentive and Share Award Plan (filed as Exhibit 10(a) to the Form 10-Q for the period ended June 30, 1996 I filed on August 14, 1996)*

10(c) Westar Energy, Inc. Non-Employee Director Deferred Compensation Plan, as amended and restated, dated as of I October 20, 2004 (filed as Exhibit 10.1 to the Form 8-K filed on October 21, 2004)* 177

WESTAR ENERGY I 2012 ANNUAL REPORT 10(d) Resolutions of the Westar Energy, Inc. Board of Directors regarding Non-Employee Director Compensation, approved I on September 2, 2004 (filed as Exhibit 10.1 to the Form 8-K filed on December 17, 2004)*

10(e) Form of Change in Control Agreement (filed as Exhibit 10.1 to the Form 8-K filed on January 26, 2006)* I 10(o Westar Energy, Inc. Form of Restricted Share Units Award (filed as Exhibit 10(aq) to the Form 10-K for the period ended I December 31, 2009, filed on February 25, 2010) 10(g) Westar Energy, Inc. Form of Performance Based Restricted Share Units Award (filed as Exhibit 10(ar) to the Form 10-K I for the period ended December 31, 2009 filed on February 25, 2010) 10(h) Westar Energy, Inc. Form of First Transition Performance Based Restricted Share Units Award (filed as Exhibit 10(as) I to the form 10-K for the period ended December 31, 2009 filed on February 25, 2010) 10(i) Westar Energy, Inc. Form of Second Transition Performance Based Restricted Share Units Award (filed as Exhibit 10(at) I to the Form 10-K for the period ended December 31, 2009 filed on February 25, 2010) 10(j) Form of Amended and Restated Change in Control Agreement with Officers of Westar Energy, Inc. (filed as Exhibit 10(au) I to the Form 10-K for the period ended December 31, 2009 filed on February 25, 2010) 10(k) Westar Energy, Inc. Retirement Benefit Restoration Plan (filed as Exhibit 10.1 to the Form 8-K filed on April 2, 2010) 1 100) Credit Agreement dated as of February 18, 2011, among Westar Energy, Inc., and several banks and other financial I institutions or entities from time to time parties to the Agreement (filed as Exhibit 10.1 to the Form 8-K filed on February 22, 2011) 10(m) Amendment to Long-Term Incentive and Share Award Plan (filed as Exhibit 10 to the Forn 8-K filed on May 6, 2011) I 10(n) Amendment to Restricted Share Units Awards between Westar Energy, Inc. and William B. Moore (filed as Exhibit 10.1 I to the Form 8-K filed on July 6, 2011) 10(o) Fourth Amended and Restated Credit Agreement dated as of September 29, 2011, among Westar Energy, Inc. and several I banks and other financial institutions or entities from time to time parties to the Agreement (filed as Exhibit 10.1 to the Fon-n 8-K filed on September 29, 2011) 10(p) First Extension Agreement dated as of February 12, 2013, among Westar Energy, Inc. and several banks and other financial I institutions party thereto (filed as Exhibit 10.1 to the Form 8-K filed on February 15, 2013) 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 Exhibit 12.1 I 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) 101.INS XBRL Instance Document #

101.SCH XBRL Taxonomy Extension Schema Document #

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document #

101.DEF XBRL Taxonomy Extension Definition Linkbase Document #

101LAB XBRL Taxonomy Extension Label Linkbase Document #

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document #

WESTAR ENERGY, INC.

SCHEDULE II-1 VALUATION AND QUALIFYING ACCOUNTS Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions',' of Period (InThousands)

Year ended December 31, 2010 Allowances deducted from assets for doubtful accounts ........................................ $5,231 $8,337 $(7,839) $5,729 Year ended December 31, 2011 Allowances deducted from assets for doubtful accounts ........................................ $5,729 $8,774 $(7,119) $7,384 Year ended December 31, 2012 Allowances deducted from assets for doubtful accounts ........................................ $7,384 $6,617 $(9,085) $4,916 "Result fiom wiite-qfifs ofaccounts receivable.

.781

WESTAR ENERGY I 2012 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 28, 2013 By: Is! Anthony D. Somma Anthony D. Somma SeniorVice President, Chief Financial Officer and Treasurer 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/ MARK A. RUELLE Director, President and Chief Executive Officer February 28, 2013 (Mark A. Ruelle) (Principal Executive Officer)

/s/ ANTHONY D. SOMMA SeniorVice President, Chief Financial Officer and Treasurer February 28, 2013 (Anthony D. Somma) (Principal Financial and Accounting Officer)

/s/ CHARLES Q. CHANDLER IV Chairman of the Board February 28, 2013 (Charles Q. Chandler IV)

Is/ MOLLIE H. CARTER Director February 28, 2013 (Molie H. Carter)

Is/ R. A. EDWARDS III Director February 28, 2013 (R. A. Edwards III)

/s/ JERRY B. FARLEY Director February 28, 2013 (Jerry B. Farley)

Is! RICHARD L. HAWLEY Director February 28, 2013 (Richard L. Hawley)

Is! B. ANTHONY ISAAC Director February 28, 2013 (B.Anthony Isaac)

Is/ ARTHUR B. KRAUSE Director February 28, 2013 (Arthur B. Krause)

/s/ SANDRA A. J. LAWRENCE Director February 28, 2013 (Sandra A. J. Lawrence)

Is! MICHAEL F. MORRISSEY Director February 28, 2013 (Michael F. Morrissey)

/s! S. CARL SODERSTROM JR. Director February 28, 2013 (S. Carl Soderstrom Jr.)

179

WESTAR ENERGY I 2012 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.

TELEPHONE PRINCIPAL TRUSTEE, PAYING We are the transfer agent for Westar Toll-free: (800) 527-2495 AGENT AND REGISTRAR Energy common stock. Shareholder Services provides information and In the Topeka area: (785) 575-6394 The Bank of New York Mellon Trust Co.

assistance to shareholders regarding: 2 North LaSalle Street, Suite 1020 Fax: (785) 575-1796 Chicago, IL 60602-3802 e Dividend payments ADDRESS (800) 254-2826

- Historically paid on the first business Westar Energy, Inc.

day of January, April, CORPORATE INFORMATION Shareholder Services July and October P.O. Box 75(0320 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 Registration (DRS) eligible Please include a daytime telephone www.WestarEnergy.com

• Direct Stock Purchase Plan assistance number in all correspondence.

COMMON STOCK LISTING

- Dividend reinvestment

- Purchase additional shares by CO-TRANSFER AGENT Ticker Symbol (NYSE): WR making optional cash payments Daily Stock Table Listing:

Continental Stock Transfer by check or monthly electronic Westa rEngy

& Trust Company withdrawal from your bank account 17 Battery Place, 8th Floor

- Deposit your stock certificates New York, NY 10004 CHIEF EXECUTIVE OFFICER into the plan for safekeeping AND CHIEF FINANCIAL OFFICER

- Sell shares CERTIFICATIONS CONTACTING INVESTOR RELATIONS Please contact us in writing to request In 2013 our chief executive officer elimination of duplicate mailings because TELEPHONE (785) 575-8227 submitted a certificate to the New York of stock registered in more than one Stock Exchange (NYSE) affirming that ADDRESS way. Mailing of annual reports can he is not aware of any violation by the Westar Energy, Inc. company of the NYSE's corporate be eliminated by marking your proxy Investor Relations governance listing standards. Our chief card to consent to accessing reports P.O. Box 889 executive officer's and chief financial electronically on the Internet.

Topeka, KS 66601-0889 officer's certifications pursuant to Section Please visit our website 302 of the Sarbanes-Oxley Act of 2002 for E-MAIL ADDRESS at www.WestarEnergy.com. the year ended December 31, 2012, were Registered shareholders can easily ir@WestarEnergy.com included as exhibits to Westar Energy, Inc.'s access their shareholder account Annual Report on Form 10-K for the Copies of our Annual Report on information online by clicking on the year ended December 31, 2012, that was Form 10-K filed with the Securities Shareholder Sign-in button, found filed with the Securities and Exchange and Exchange Commission and other on the Investors page of our website. Commission.

published reports can be obtained without charge by contacting Investor Relations at the above address, by accessing the company's home page on the Internet at www.WestarEnergy.com or by accessing the Securities and Exchange Commission's Internet website at www.sec.gov.

801

WESTAR ENERGY I 2012 ANNUAL REPORT DIRECTORS:

CHARLES Q. CHANDLER IV (59) JERRY B. FARLEY (66) ARTHUR B. KRAUSE (71) MARK A. RUELLE (51)

Chairman of the Board Directorsince 2004 Directorsince 2003 Directorsince 2011 Directorsince 1999 President Executive Vice President and President and Chief Executive Officer Chairmansince 2002 Washburn University Chief Financial Officer (Retired) Westar Energy; Inc.

Chairman of the Board, President Topeka, Kansas Sprint Corporation Topeka, Kansas and Chief Executive Officer Committees: Audit, Nominating Naples, Florida INTRUST Bank, NA anld Corporate Governance Committees:Audit, Finance S. CARL SODERSTROM, JR. (59)

Wichita, Kansas Directorsince 2010 RICHARD L. HAWLEY (63) SANDRA A.J. LAWRENCE (55) Senior Vice President and MOLLIE HALE CARTER (50) Directorsince 2011 Directorsince 2004 Chief Financial Officer (Retired)

Directorsince 2003 Executive Vice President and Executive Vice President and ArvinMeritor Chairman of the Board, President Chief Financial Officer (Retired) Chief Financial Officer Longwood, Florida and Chief Executive Officer Nicor, Inc. Children's Mercy Hospital Committees: Finance: Nominating Sunflower Banks, Inc. Bellevue, Washington Kansas City, Missouri and Corporate Governance Salina, Kansas Committees: Audit, Compensation Committees: Compensation, Committees: Compensation,Finance Nominating and Corporate B. ANTHONY ISAAC (59) Governance R.A. EDWARDS III(67) Directorsince 2003 Directorsince 2001 Senior Vice President MICHAEL F. MORRISSEY (70)

Chairman of the Board Hyatt Hotels Corporation Directorsince 2003 First National Bank Wichita, Kansas Managing Partner (Retired) of Hutchinson Committees: Compensation, Finance Ernst & Young LLP Hutchinson, Kansas Naples, Florida Committees:Audit, Nominating Committees:Audit, Compensation and Corporate Governance OFFICERS:

MARK A. RUELLE (51) ANTHONY D. SOMMA (49) JEFF BEASLEY (54) LARRY D. IRICK (56) 20 years of service 18 years of service 35 years of service 13 years,f service Director, President and Chief Senior Vice President and Chief Vice President, Corporate Vice President, General Counsel Executive Officer Financial Officer/Treasurer Compliance and Internal Audit and Corporate Secretary DOUGLAS R. STERBENZ (49) GREG A. GREENWOOD (47) JOHN BRIDSON (43) JEFF MARTIN (42)*

15 years of service 19 years of service 19 years of service 19 years of service Executive Vice President and Senior Vice President, Strategy Vice President, Generation Vice President, Regulatory Affairs Chief Operating Officer BRUCE AKIN (48) KELLY B. HARRISON (54) PEGGY S. RICKETTS (55)

JAMES J. LUDWIG (54) 25 years of service 31 years of service 34 years of service 22 years of service Vice President, Power Delivery Vice President, Transmission Vice President, Customer Care Executive Vice President, Public Affairs and Consumer JERL L. BANNING (51) LEE WAGES (64)

Services 4 years of service 35 years of service Vice President, Human Resources Vice President, Controller

• Appointmenteffective as of Febnmany 2013 Ages and years of service are as of December 31, 2012. 181

• Westar Energy.

P.O. Box 889, Topeka, Kansas 66601-0889

• www.WestarEnergy.com I t MIX Jt Peper from F Cresponsible sources SFSC" 0014805